Asian stocks show mixed performance with Nikkei 225 retreating from record highs
- Asian stocks gained after Wall Street’s overnight rally on rising Fed rate cut expectations.
- The CME FedWatch tool shows markets pricing in 10% odds of a larger 50-basis-point move in September.
- Japanese equities climbed to new record highs following the resignation of Prime Minister Shigeru Ishiba.
Asian stocks rose on Tuesday, mirroring Wall Street’s overnight strength. This strength is attributed to rising expectations that the US Federal Reserve (Fed) will cut rates in September after last week’s weaker-than-expected August jobs data, with markets increasingly betting on the possibility of a larger 50-basis-point move. The Asian markets ticked higher despite global political turmoil, keeping currency and bond investors on edge.
At the time of writing, Japan’s Nikkei 225 pulls back from all-time highs, trading near 43,700, while Hong Kong’s Hang Seng holds ground above 25,800, trimming daily gains after reaching highs since October 2021; South Korea’s KOSPI advances 1.07% above 3,250, its highest level in more than five weeks. However, China’s Shanghai Composite declines 0.30% to near 3,800, while the Shenzhen Component depreciates 0.89% to 12,500.
Traders see a 25-basis-point cut this month as all but certain, with attention now turning to whether the Federal Reserve might opt for a larger 50-basis-point move. The CME FedWatch tool shows markets pricing in nearly a 90% chance of a quarter-point cut at the September meeting, up from 86% a week earlier, alongside a 10% probability of a 50-point reduction.
Traders will likely watch the US Nonfarm Payrolls Benchmark Revision due later in the day. Focus will shift toward US inflation reports that could shape the interest rate outlook. The August US Producer Price Index (PPI) is scheduled for release on Wednesday, followed by the Consumer Price Index (CPI) on Thursday.
Japanese equities rose to fresh records after the resignation of the country's Prime Minister Shigeru Ishiba. Ishiba announced Sunday that he would resign amid growing divisions within the ruling party and sustained pressure following his defeat in last year’s national election. In a separate development, Japan’s tariff negotiator Ryosei Akazawa said in an X post on Tuesday that US tariffs on Japanese goods, including cars and auto parts, will be reduced by September 16.
Hong Kong stocks advanced, led by a roughly 2% jump in property shares after Shenzhen eased home-buying curbs last week. Tech, financial, and consumer stocks also gained, supported by a third consecutive rise in mainland markets as Beijing moves toward a record trade surplus.
South Korean markets found support after Finance Minister Koo Yun-cheol signaled Monday that the government may reconsider its earlier proposal on capital gains taxation for large shareholders. The initial plan aimed to lower the taxable equity holding threshold from KRW 5 billion ($3.61 million) to KRW 1 billion.
AsianStocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
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