Asia Stocks On Track to Enter Bull Market as China Rally Extends

(Bloomberg) — Asia’s benchmark stock index was on track to enter a bull market, as China’s reopening and a weakening dollar lure investors back to the region.

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The MSCI Asia Pacific Index climbed as much as 1.6% on Monday, taking its advance from an Oct. 24 low to more than 20%. Gauges in Hong Kong and South Korea led gains in the session, while Japan was closed for a holiday.

The potential milestone marks a turnaround for the MSCI Asia gauge, which tumbled nearly 40% from a peak in early 2021 as China stuck to its stringent Covid-zero policy and the region’s heavyweight chip stocks entered a downcycle on waning demand. Chinese stocks, which carry the second-highest weighting in the Asia gauge after Japan, turned a corner since November as the nation signaled a shift away from virus-control measures.

The Asian benchmark is up 3.6% so far in 2023, beating the S&P 500 Index by about two percentage points. That’s after they both slumped about 19% last year, their worst performance since 2008.

“The rally has been fast and furious, so it is only natural to expect some profit-taking,” said Charu Chanana, senior strategist at Saxo Capital Markets Pte. “There are also some risks to keep a tap on, such as BOJ’s hawkish shift and company earnings. But that being said, there is still room for Asian markets to outperform global peers in 2023.”

Stocks in China have made a strong start to 2023 after being caught in a downward spiral for much of last year amid concerns over the economic toll from virus restrictions. Easing regulatory risks and more support measures to revive the troubled property sector have lent an additional boost to the market, helping the Asia rally.

A gauge of Chinese stocks listed in Hong Kong climbed 1.8% as of 10:27 a.m. local time, taking its gain for the year to more than 8%. Alibaba Group Holding Ltd. led a rally in tech shares as comments by Guo Shuqing, party secretary of the People’s Bank of China, that a clampdown on the sector is coming to an end likely gave traders further conviction.

Investors are gearing up for more gains in China, with consumer-related stocks expected to spearhead the surge. Meanwhile, tech stocks in Asia have also recovered amid indications that the Federal Reserve will likely slow its pace of interest-rate increases.

“The US dollar is weakening, thus pushing liquidity back to Asia Pacific markets.” said Banny Lam, managing director at CEB International Investment Corp. “I believe it is a more sustainable rally as 2022’s dip and improving regional economic outlook provide room for upside.”