Asian markets advanced Monday after China removed a floor on banks’ lending rates and Japan’s ruling government regained control of the parliament’s upper house, raising hopes for further reforms in both economies.
Japan’s Nikkei Stock Average rose 0.5%, the Shanghai Composite added 0.6% and Hong Kong’s Hang Seng Index edged 0.3% higher, with each overcoming volatility that dragged them into losses earlier in the day.
“Longer-term investors will take heart from the improved potential for structural reform in Japan and China’s abolition of minimum bank lending rates,” said CMC Markets chief market analyst Ric Spooner.
The performance in Tokyo came after the ruling Liberal Democratic Party’s coalition easily won a majority of the 121 seats contested in the upper house elections over the weekend. The victory gave Prime Minister Shinzo Abe’s LDP control over both houses, consolidating its political power.
Telecommunication and insurance shares advanced, although a strengthened yen weighed on some exporters.
Shares of Softbank Corp. climbed 0.9%, Nippon Telegraph & Telephone Corp. gained 1.3%, and MS&AD Insurance Group Holdings Inc. rose 1%.
On the downside, Nissan Motor Corp. eased 0.7%, Mitsubishi Heavy Industries Ltd. retreated 4.1%, and Renesas Electronics Corp. dropped 3.4%, as the U.S. dollar fell to around the ¥100-level.
HSBC’s co-head of Asian economic research Frederic Neumann said the real test for Prime Minister Abe’s administration lay ahead, as he must urgently implement far-reaching reforms to revive the economy.
“No matter whether [Abe] succeeds in the coming quarters or not, there is one effect that will be keenly felt: Japanese money will increasingly wash over Asia,” he wrote in a note to clients.
Chinese shares turned volatile, meanwhile, as analysts said the People’s Bank of China’s decision late Friday to abandon a floor on the rates bank could charge on their loans marked a structural reform, but one that wouldn’t significantly affect bank earnings nor provide help to the economy.
“We believe this is the easy part of interest-rate deregulation, but nevertheless is an important first step in the right direction for structural reforms,” Credit Suisse economist Dong Tao wrote in a report. “Removing the deposit-rate ceiling would be more significant to the economy and banking sector than removing the floor to the lending rate.”
China currently caps the interest rates that banks pay on deposits, a factor that often pushes savers toward riskier investments in search of higher returns.
Credit ratings agency Moody’s Investors Service said that while the removal of the lending rate marked an important step in China’s financial reforms, removal of the lending rate floor was a credit negative for banks. “It is another move towards interest rate deregulation that will narrow their net interest margins,” Moody’s said.
In Monday trade, shares of China Construction Bank Corp. lost 0.2%, and those of Industrial & Commercial Bank of China Ltd. shed 0.5% in Shanghai.
Shares of metals companies advanced after gold and copper prices rose Friday in the U.S. Jiangxi Copper Co. climbed 2% and Zijin Mining Group Co. added 2.5% in Shanghai; in Hong Kong, Zhaojin Mining Industry Co. rose 4.5% and China Molybdenum Co. advanced 1.1%.
Elsewhere, Australia’s S&P/ASX 200 rose 0.6% and South Korea’s Kospi added 0.5%, with the Australian shares propped up by the mining and financial sectors.
Commonwealth Bank of Australia gained 0.6%, and Macquarie Group Ltd. rose 3.3%, while gold miner Newcrest Mining Ltd. jumped 7.5%.
Asia’s performance came after the Standard & Poor’s 500 Index marked modest gains in the U.S. on Friday, though weakness for Microsoft Corp. helped drag down the Dow Jones Industrial Average .
Source : Marketwatch
