Asian stock markets reflect strong demand on Friday, as traders reconsidering hawkish Federal Reserve (Fed) bets and lower oil prices due to easing geopolitical woes have lifted demand for risk-sensitive assets.
At press time, Nikkei 225 is up 1% to near 69,500, Shanghai jumps 0.45% at around 4,050, Hang Seng climbs 1% to near 23,280, and KOSPI soars over 5.8% at around 8,090.
According to the CME FedWatch tool, the odds of the Fed delivering at least one interest rate hike in the September policy meeting have diminished to 53.2% from almost 64% seen on Wednesday
Traders reprice Fed interest rate expectations after the release of United States (US) Nonfarm Payrolls (NFP) data on Thursday, which showed that the economy created 57K fresh jobs in June, significantly lower than estimates of 110K. Also, the May data was revised lower to 129K from 172K.
Meanwhile, lower oil prices bode well for economies that rely heavily on oil imports to meet their energy needs. WTI Oil price trades close to its pre-Middle East war levels, as Oman has signaled progress in indirect talks between the US and Iran.
KOSPI outperforms the Asian market board as its tech giants, Samsung Electronics and SK Hynix, have bounced back strongly after sliding over 17% in the last two trading days.
Asian stocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.