Longer-term investors took a heart from the improved potential for structural reform in Japan and China's abolition of minimum bank lending rates.
In Japan, 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. The win in the election for parliament's upper house gives the hawkish Abe a stronger mandate for his "Abenomics" recipe to revive the economy and sets the stage for the first stable government since popular Junichiro Koizumi left office in 2006.
''Abe's victory in the upper house is bullish for Japanese equities and the Japanese economy as a whole, as the removal of political headwinds bolsters the government's ability to press forward with all 'three arrows' of its growth strategy,'' John Vail, Tokyo-based chief global strategist at Nikko Asset Management said.
In China, China's central bank removed controls on bank lending rates, effective Saturday, in a long-awaited move that signals the new leadership's determination to carry out market-oriented reforms. The move gives commercial banks the freedom to compete for borrowers, a reform the People's Bank of China (PBOC) said Friday will help lower financial costs for companies. Previously, the lending floor was 70% of the benchmark lending rate. However, the PBOC, in a statement, left a ceiling on deposit rates unchanged at 110% of benchmark rates, avoiding for now what many economists see as the most important step China needs to take to free up interest rates. The latest step underscores the government's resolve to start fixing distortions in its financial system and the economy more broadly as it tries to shift from export- and investment-led growth to more consumption-led activity.
Standard & Poor said in a report that the PBOC announced to give up its role in guiding commercial banks' lending rates, and now it is left with controlling commercial banks' deposit rates as its main price-based policy instrument. In the case PBOC frees up deposit rates as well, it would then likely have to adopt a more conventional monetary policy framework by targeting a money market interest rate. The rating agency noted that over the past years, the market orientation of interest rate could be related to the surge in off-balance-sheet and nonbank financing. The spike in volatility of inter-bank rate in mid June resulted in slowdown of shadow financing growth, but the impact could be temporary.
Turnover on the regional bourses were, however, relatively light as many investors opted sideline ahead of HSBC China factory activity report slated for Wednesday and the looming June quarter reporting season.
In the Asia Pacific region, Japan market advanced on Monday, July 22, 2013, as investor cheers Prime Minister Shinzo Abe's win in the Japanese upper house election. The benchmark Nikkei 225 index rose 0.47% at 14,658.04, while the Topix index of all first-section shares was up 0.38% at 1,216.53.
Tokyo stocks commenced Monday's session firmly higher as investors were encouraged by the ruling Liberal Democratic Party and its coalition partner, New Komeito, won in an upper house majority in Sunday's election, that gave the ruling bloc control of both chambers of the Diet. However, the Nikkei average fell down slightly at the opening of the afternoon session due to the dollar weakening to the upper-99 yen level. Further, with the dollar's recovery to the 100 yen level fueled purchases of exporters and other stocks. Stocks extended their afternoon gains after Prime Minister Shinzo Abe discussed his growth-strategy plans in a press conference.
Nippon Paint Co. jumped 6.6% to 1.318 yen after the maker of automotive and household coatings raised its profit forecast.
Mitsubishi Heavy Industries dropped 4.1% to 608 yen after Southern California Edison Co. said the Japanese machinery maker breached a contract on a generator.
In Australia, Australian stock market advanced, with the benchmark S&P/ASX200 rose 0.6% to 5001.9. The broader All Ordinaries added 0.6% to 4988.9. Almost all sectors measured by the ASX closed higher with gold index advanced 1%, best performer among ASX sectoral peers as gold prices reached a one-month high, followed by resources 1.3% up, energy 1.1% up, materials 1% up, consumer staples 0.8% up and consumer discretionary 0.8% up.
Investment bank Macquarie Group surged 3.3% after strong results from U.S peers last week. Newcrest Mining jumped 7.5% as spot gold rose 0.8% on Friday, and a further 2% in Asian trading on Monday.
In New Zealand, shares in the NZ market advanced aced by some of this year's strongest performers such as Xero, Diligent Board member Services and Ryman Healthcare, amid signs investors are regaining their appetite for risk as US earnings season generally doesn't disappoint. The NZX 50 Index rose 15.735 points, or 0.3%, to 4554.041. Within the index, 29 stocks rose, 13 fell and eight were unchanged. Turnover was a lower-than-average $58.5 million, with some trading operations disrupted by the Wellington earthquake.
In China, Key benchmark indices on the Chinese market closed higher after recouping losses late afternoon on Monday, July 22, 2013, lead by smaller companies of tech, resources and defensive stocks on speculation looser interest-rate controls will benefit them. The benchmark Shanghai Composite rose 0.61% at 2004.64, registering first gains in four sessions in row. The benchmark index lost as much as 1.1% early today.
Chinese banks were weak after China removed controls on lending rates. China's central bank on Friday said it would scrap the floor on loan rates effective on Saturday, a long-awaited move toward liberalizing the financial sector. China Construction Bank Corporation lost 0.2% to 4.35 yuan, China Merchants Bank 0.6% to 10.85 yuan, Bank of China 0.8% to 2.64 yuan, Bank of Communications Co 1.3% to 3.79 yuan and Bank of Beijing Co 1.5% to 7.91 yuan.
In Hong Kong, share in the city bourses closed modest higher in quiet trade, lead by financials, realty and resources stocks. The benchmark Hang Seng Index finished 0.25% higher at 21416.50.
In Singapore, Singapore shares rose, with Suntec Real Estate Investment Trust and CNA Group outperforming the broader market. The Straits Times Index was up 0.66% at 3,234.61. Suntec Real Estate Investment Trust rose 2.3% and was among the top traded stocks by value in the Singapore market. The company reported distribution per unit (DPU) of 2.249 cents for its second quarter, down 4.7% from a year earlier, mainly due to partial closure of its Suntec City Mall and Suntec Singapore for improvement works.
In India, key Indian benchmark indices pared gains in a range bound market in afternoon trade. A weak opening in the European market spoiled investors' sentiment. The Sensex was up 98.07 points or 0.49%, off 17 points from the day's high and up about 182 points from the day's low.
Infotech Enterprises, Hindustan Zinc, Wockhardt, MMTC and Financial Technologies (India) saw a surge in volumes on BSE today, 22 July 2013. Anil Dhirubhai Ambani-controlled telecom company Reliance Communications (RCom) fell after a Delhi court on Friday, 19 July 2013 asked Reliance ADA Group Chairman Anil Ambani and his wife Tina to appear as prosecution witnesses in ongoing 2G scam case.
Elsewhere in Asia, South Korea's KOSPI rose 0.5% and Taiwan's Taiex added 0.54%. Indonesia's Jakarta Composite fell 0.63%, while Malaysia's KLSE Composite was trading little lower.
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