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Asian Stocks Under Pressure as China Weakness Persists, Nikkei Slides Amid BOJ Pivot Talks

8 December 2023 Written by Zixin Wang  Finance Industry Expert Zixin Wang

Most Asian stocks faced a downturn on Thursday, as lingering concerns over a potential Chinese economic slowdown continued to weigh on market sentiment. The Japanese stock market, in particular, saw a sharp decline as Bank of Japan (BOJ) Governor Kazuo Ueda discussed the possibility of pivoting away from negative interest rates. Meanwhile, investors across the region were closely watching for key U.S. labor market data to assess the Federal Reserve's potential timing for interest rate adjustments.

China's Market Struggles Continue, Trade Data Offers Little Relief

Chinese markets continued to lag behind their Asian counterparts, with the blue-chip Shanghai Shenzhen CSI 300 index falling by 0.5% to nearly a five-year low. The Shanghai Composite also saw a 0.5% decline, hitting its lowest point in over a month, while Hong Kong's Hang Seng index experienced a significant 1.9% drop, marking a 13-month low.

November's trade data for China revealed minimal improvement in the country's economic conditions. While there was an unexpected growth in the trade surplus, driven by a mild recovery in exports, a surprising decline in imports indicated ongoing weakness in domestic demand.

Sentiment towards China remained pessimistic, largely influenced by Moody's threat of a potential credit rating downgrade earlier in the week. The ratings agency expressed concerns over increased economic risks stemming from a potential property market crisis and a lack of clear policy support from the Chinese government.

Nikkei Takes a Hit as BOJ Governor Hints at Challenges and Pivot Options

Japan's Nikkei 225 index experienced a notable 1.6% decline following comments from Bank of Japan Governor Kazuo Ueda. Ueda suggested that the bank would face an "even more challenging situation" in December and January. Additionally, discussions regarding the possibility of raising interest rates from record lows reinforced expectations that the BOJ might end its long-standing ultra-loose monetary policies in 2024. This potential pivot would bring an end to nearly a decade of easy monetary policy, which played a significant role in fueling the remarkable rally of Japanese stocks this year.

However, Ueda stressed the continued need for a dovish monetary policy in the short term, citing potential vulnerabilities in the Japanese economy.

Broad Asian Markets Affected by China's Weakness and Wall Street's Performance

Across broader Asian markets, a negative tone emanated from China, with regional indexes struggling. The influence of a weak overnight close on Wall Street further compounded the challenges faced by Asian stocks. Investors were notably cautious ahead of the release of the key U.S. nonfarm payrolls data scheduled for Friday, as this report is expected to provide significant insights into the future path of monetary policy.

Notably, expectations of a less hawkish stance from the Federal Reserve had been driving substantial gains in Asian stocks over the past month. Market sentiment had leaned towards the belief that the central bank would refrain from further rate hikes and possibly initiate policy loosening as early as March 2024.

Australia's ASX 200 declined by 0.4% on Thursday, influenced by lower-than-expected growth in the country's trade surplus for October, particularly in exports to China, which showed minimal improvement. South Korea's KOSPI fell by 0.1%, while Southeast Asia's SET Index, led by Thailand, experienced a notable 0.7% drop. Futures for India's Nifty 50 index indicated a weak opening, suggesting a cooling-off period following three consecutive sessions of record highs. Additionally, the focus was on the Reserve Bank of India's meeting scheduled for Friday, amidst recent concerns regarding inflation in India.

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