Equities drift higher in Asia

Hong Kong big-techs climb

The news that China has overtaken the US as the biggest destination for Foreign Direct Investment (FDI) appears to have lifted spirits in Asia this morning, with exchanges in Northern Asia mostly higher. The Nikkei 225 has risen 0.43%, while the Kospi has leapt 1.80%. China’s Shanghai Composite has risen 0.55%, with the CSI 300 climbing 0.75%. Chinese retail investors are piling into Hong Kong-listed big-tech stocks today, lifting the Hang Seng by 1.85%.

It appears the China event horizon is not extending to ASEAN markets though, which appear to be following Wall Street’s lead. Singapore and Kuala Lumpur have fallen 0.25%, while Bangkok is down 0.55% and Manila is 0.30% lower. That China beta is lifting Australian stock markets though, with the ASX 200 up 0.25% and the All Ordinaries up 0.45%. With a holiday in Australia tomorrow, volumes are muted.

The FDI story has definitely lifted China and its near neighbours today, blowing an economic recovery tailwind into geographically adjacent markets. Looking ahead, equities will find more meaningful reactions from the progress or not of the Biden stimulus package, and the level of dovishness displayed by the Fed at their FOMC meeting this week.

On the topic of stimulus, the much-mooted Biden USD1.9 trillion stimulus package has been priced by markets as sailing through the Senate unimpeded, which appears a most naive sentiment. The markets appear disconnected from political reality and have been blissfully ignoring the filibuster, reconciliation and the Byrd Rules. Noises from Washington DC suggest that President Biden’s honeymoon won’t extend to Senate Republican’s handing over ten votes to ease the package though on a 60-40 majority. True, the 60-vote majority can be trimmed to a 51-vote majority through reconciliation, breaking down the bill’s constituent parts, flushing them through a committee and passing that bit with a simple majority. The Byrd Rule means that state and local government aid, by my interpretation, will need 60 votes regardless. This means a bumpy road ahead for Joe and his stimulus package.

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