Asia shares advance on strong China GDP, cautious Fed view

SINGAPORE: Asian stocks hit a two-year high yesterday, boosted by stronger-than-expected economic growth in China and bets that lacklustre US data will keep the Federal Reserve cautious about the pace of policy tightening.

European markets also looked set for a positive start, with financial spreadbetter CMC Markets expecting Britain’s FTSE 100 and Germany’s DAX to open 0.2 per cent higher, and France’s CAC 40 to start the day up 0.1 per cent.

Chinese blue-chips recouped steep early losses after data showed the world’s second-largest economy grew at a slightly faster than expected clip of 6.9 per cent in the second quarter, thanks to robust industrial output, retail sales and exports.

MSCI’s broadest index of AsiaPacific shares outside Japan extended earlier gains to climb 0.3 per cent after the buoyant China readings. Japanese markets were closed for a holiday.

Australian shares were down 0.2 per cent, while South Korea’s KOSPI jumped 0.4 per cent.

China stocks fell more than 2 per cent in early trade, but the main indexes later recouped most of their losses as the buoyant GDP reading prompted investors to scoop up blue chips on expectations of better earnings.

Jingyi Pan, a market strategist at IG in Singapore, said the market fell initially after news at the weekend that President Xi Jinping wants to create a new cabinet-level committee to coordinate financial oversight, sparking concerns of further policy tightening.

Asian markets also rode the updraft from a strong Wall Street performance on Friday.

The Dow and S&P 500 hit record highs after data showed consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and subdued expectations of strong economic growth in the second quarter which could make Fed policymakers more cautious.

The chance of a Fed rate hike in December fell to 43.1 per cent after the data, from 55 per cent late on Thursday, according to the CME Group’s Fedwatch tool.

The dollar index, which tracks the greenback against a basket of trade-weighted peers, hit a 10-month low early on Monday. — Reuters