New Home Price Decline In China Extends to 9th Month, Japan's Rate Decision In Focus

Arjun Pandit
15 Mar, 2024
Sydney

Markets in Asia closed down after choppy trading in the week amid persistent interest rate uncertainties in Japan, a fragile economic recovery in China, and valuation worries in India. 

 

Bank of Japan's Rate Decision in Focus 

Stock market indexes in Japan traded down, and investors turned cautious ahead of the Bank of Japan's policy meeting next week. 

It is widely anticipated that the central bank will readjust its monetary policy, which could lead to an interest rate increase later in the year, the first since 2007.

The Bank of Japan is expected to end its negative interest rate in place since 2016 as inflation picks up, wages at large corporations rise, and a rate difference with the U.S. keeps the yen weak. 

The expectations of a change in the direction of interest rates are running high after the end of the annual spring wage negotiations between large corporations and workers unions.

Japanese corporations agreed to wage increases between 5% and 12%, solid wage gains for the second year in a row as companies struggle with labor shortages.

However, wages may not rise more than 2% to 3% at small and midsized companies, which employ about 70% of Japan's labor force, making the Bank of Japan's job harder if wage gains fail to spread to the broader economy. 

The Nikkei 225 Stock Average decreased 0.5% to 38,616.82, and the Topix index rose 0.2% to 2,666.62. 

For the week, both benchmark indexes decreased by 0.5%. 

Tech stocks led the decliners following the weakness in overnight trading in New York.

Softbank, Disco Corp., Tokyo Electron, Advantest, and Screen Holdings declined between 2% and 4%. 

Tokyo Electric Power jumped 11.4% to ¥952.40 after Japan intensified efforts to restart the world's largest nuclear power plant after eleven years of closure, according to the Niigata Nippo newspaper. 

The move will help the company reduce its operating costs and eliminate dependence on imported crude oil and natural gas to run power plants. 

 

China New Home Prices Fall; PBoC Holds 1-Year Rate

Stocks in Shanghai and Hong Kong declined for the third day in a row after China held its lending rate steady and withdrew liquidity injected earlier in the year. 

The People's Bank of China kept its one-year term facility rate at 2.5% and also drained cash of 94 billion yuan, or $13 billion, from the financial system. 

Market mood also soured after new home prices in the 70 largest cities fell for the ninth month in a row in February by 1.4% from a year ago, the National Bureau of Statistics reported Friday. 

The new home prices fell at the fastest pace despite several measures by Beijing to prop up the market amid weakening buyers's confidence.

On Monday, investors are looking ahead to the release of several key economic indicators, and at least 30 large companies are scheduled to release their earnings next week. 

The CSI 300 index declined 0.5% to 3,543.41, and the Hang Seng Index dropped 2% to 16,607.26. 

For the week, the CSI 300 index decreased 0.1%, but the Hang Seng index increased 1%. 

China Vanke, China Resource Land, and Longfor Group declined between 3% and 6%. 

Tech stocks also headed lower after hopes of an interest rate cut at the U.S. Federal Reserve's policy meeting next week were dashed following the acceleration of the producer price index. 

Baidu, Alibaba Group, JD.com, and Tencent Holdings declined between 3% and 5%. 

 

Small and Mid-caps Stocks In India Extend Losses

Stocks on Dalal Street traded down and extended two-day losses after investors turned cautious on stretched valuation worries. 

The Sensex and the Nifty indexes edged lower by 0.2%, but several stocks in the small and midcap segments extended their two-day losses to more than 20%.

But more sharp market declines may be in the making after a rally in small and mid-cap stocks lifted 90 stocks above 100% in the last two years, according to data compiled by Niveshak.in. 

The BSE Small Cap Index is down 11% from the record high, but the index is still trading at 28 times earnings and 3 times book value. 

Investors have been directing new fund flows to small and mid-cap segments of the market after large-cap stocks are deemed trading ahead of business fundamentals. 

But the steady flows in small and mid-cap stocks have created an even larger bubble, prompting the securities regulatory agency to direct mutual fund companies to halt new fund flows. 

Individual investors have increased their share of small and mid-cap stocks in the Nifty 100 Smallcap 100 Index to 15.4% from 12.5%, according to Kotak Securities. 

“Most mid- and small-cap stocks are still trading at full-to-lofty valuations and well above their fundamental value,” Sanjeev Prasad, co-head of institutional equities at Kotak Securities, noted in a research report to clients. 

The Sensex index decreased 0.3% to 72,843.21, and the Nifty index edged down 0.3% to 22,083.10. 

The Sensex and the Nifty indexes are set to close down 2% for the week and halt a seven-week rally.

But smaller cap-focused indexes are down for the third week in a row, with losses totaling more than 15%. 

On the Mumbai stock exchange, 20 stocks traded at their 52-week highs and 14 stocks traded at their 52-week lows.

The yield on the 10-year Indian government bonds increased to 7.04%, and the Indian rupee edged lower to ₹82.96 against the U.S. dollar.