Daily Management Review

Rally in Oil Prices is Followed by a Surge in Asian Shares


Rally in Oil Prices is Followed by a Surge in Asian Shares
Extending gains from Friday after a rally in battered oil prices prompted a rise in global equities, shares in Chinese and other Asian markets began the week on a firmer note.

With Japan’s Nikkei nudging 1% higher and MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.6%, other stock markets in Asia also rose on Monday. The surge was helped by expectations that global central banks, including the People’s Bank of China, will ease monetary policy further if needed.

As oil bounced off 12-year lows the CSI300 index of the largest listed companies in Shanghai and Shenzhen was up 0.7%, building on gains of more than 1% on Friday, while the benchmark Shanghai Composite Index was up 0.9% by early Monday afternoon.
Oil prices held their gains in Asia on Monday, with both Brent and US light crude trading above $32 a barrel after surging 10% on Friday and helping Wall Street rise more than 2%.
Due to concerns about the slowing economy and confusion over the central bank’s foreign exchange policy, China’s fickle stock markets have slumped about 16% so far this year. A lack of investor confidence and an exaggerating volatility were reflected by the thin trading volumes.
The People’s Bank of China (PBOC) has kept the currency level little changed for the past two weeks chastened by the market’s bearish reaction to an early January depreciation in the yuan.
“As the [yuan] exchange rates calm after recent interventions, stocks are likely to stabilize, and can even stage a technical reprieve in the near term,” Hao Hong, managing director of research at BOCOM International, said.
“Recovering oil prices amid the epic [US] snow storm will also help, and non-commercial traders have already cut their bets,” he said, warning that the weaker overall trend had not yet ended,” Hong said.
With investors applying for more than 4,000 times the number of shares on offer, China’s first initial public offering under new rules to make listings easier also got off to a storming start on Monday. That enthusiasm is likely to remain confined to IPOs, however, which in China have typically been one-way winning bets.
Its offering of shares worth up to 258.7m yuan (£28m) was 4,335 times oversubscribed, said Guangzhou Goaland Energy Conservation Tech, a producer of coolants for electricity generators said in a statement late on Sunday.
Despite assurances from Beijing it has no intention of pushing it lower to gain a competitive advantage, investors remain wary about further weakness in the yuan. By allowing sharp, sudden slides in the currency, the central bank has jolted global financial markets twice in six months only to step in aggressively to stabilize it.
“Short selling of the yuan has almost disappeared so trading was relatively thin,” said a dealer at a foreign bank in Shanghai.
Christine Lagarde, the managing director of the International Monetary Fund said that the financial markets need “clarity and certainty” about how Chinese authorities are managing their currency.
As Japan reported that exports to China, its biggest trading partner, were down for a fifth straight month there were more signs of weakness in China’s economy on Monday.