Asia report: Stocks higher as Bank of Korea hikes rates

Stocks in Asia closed in positive territory on Thursday, with markets in China showing particular strength as investors pinned their hopes on economic support from Beijing.

In Japan, the Nikkei 225 was up 1.22% at 27,172.00, as the yen strengthened 0.2% against the dollar to last trade at JPY 125.37.

It was a positive day for the benchmark’s major components, with robotics specialist Fanuc up 1.45%, Uniqlo owner Fast Retailing rising 2.14%, and tech investing giant SoftBank Group jumping 3.04%.

The broader Topix index was ahead 0.95% by the end of trading in Tokyo, closing at 1,908.05.

On the mainland, the Shanghai Composite was 1.22% firmer at 3,225.64, and the smaller, technology-centric Shenzhen Composite was 1.11% higher at 2,034.48.

Sentiment in China was boosted by comments from authorities in Beijing overnight, suggesting policymakers were prepared to offer economic support in the wake of the country’s worst Covid-19 outbreak since the start of the pandemic.

According to local media, the government was prepared to cut the central bank’s reserve ratio requirement as needed, to expand the credit capacity of banks.

That news came after a State Council executive meeting was chaired by premier Li Keqiang, as Shanghai began to emerge from a sudden and severe coronavirus lockdown.

South Korea’s Kospi eked out gains of 0.008%, or just 0.22 points, to 2,716.71, while the Hang Seng Index in Hong Kong was 0.67% higher at 21,518.08.

Chinese oil player CNOOC saw its shares rise 0.87% in the special administrative region, after Reuters reported it was looking to exit some of its Western operations amid fears of sanctions.

The blue-chip technology stocks were weaker on the Korean peninsula, meanwhile, with Samsung Electronics down 1.75% and SK Hynix off 2.65%.

That weakness in Seoul came after the Bank of Korea hiked its base interest rate by 25 basis points to 1.5%.

Such a move was not widely anticipated, with less than half of the economists involved in a Reuters poll expecting the hike.

“Consensus was split down the middle on whether today’s meeting would produce a hike, given the lack of a governor,” said Craig Botham at Pantheon Macroeconomics.

“Governor Lee’s term has ended, and nominee Rhee Chang-long has not yet had his confirmation hearing.

“The decision by the BoK, however, was unanimous, driven by fears of higher inflation for longer, linked to the invasion of Ukraine.”

Botham said the central bank’s statement was less bullish, reflecting rapid changes in the external backdrop.

“Inflation has continued to accelerate, even as global growth has moderated.

“A continued global recovery is expected, but contingent on the easing of Covid restrictions, global inflation and monetary policy, and geopolitical risks.

“This sounds like a less-than-oblique reference to China, the US, and Russia, respectively.”

Korean exports were expected to continue their solid growth, Craig Botham noted, despite all of that, implying that the current flagging of momentum would be short-lived.

“We are not so sure, particularly given the trifecta of external risks the BoK itself mentions.

“The big worry for the BoK is domestic inflation - consumer debt didn’t get in a look-in this time, beyond a passing mention of a small decrease in household loans.”

Korea’s CPI inflation hit 4.1% in March, and was expected to remain above 4% for some time, and to exceed the February forecast for 2022 of 3.1%.

GDP growth, meanwhile, was now expected to underperform the 3% forecast made in February.

“We had expected a rate hike in the second quarter, but not at this meeting,” Botham continued.

“We still expect one more hike this year, in the third quarter, and then a pause in the hiking cycle until 2023.

“The likely hit to growth - and concomitant dampening effects on inflation - from weaker global demand and geopolitical events should induce caution.”

Oil prices were on the back foot as the region went to bed, with Brent crude futures last down 0.55% on ICE at $108.18 per barrel, and the NYMEX quote for West Texas Intermediate slipping 0.58% to $103.65.

In Australia, the S&P/ASX 200 was up 0.59% at 7,523.40, after fresh data out of Canberra showed the country’s unemployment rate remaining stable in March at 4%.

That was slightly worse than what markets had forecast, with economists polled by Reuters having pencilled in unemployment of 3.9% for the month.

Across the Tasman Sea, New Zealand’s S&P/NZX 50 managed gains of 0.14% to 11,891.58, led higher by aged care property developer Ryman Healthcare, which jumped 3.4%.

A note from Morningstar recently said the stock was undervalued, suggesting investors were penalising the company “for transient issues or industry-wide problems not shared by Ryman”.

The down under dollars were mixed against the greenback, with the Aussie last 0.08% weaker at AUD 1.3426, while the Kiwi strengthened 0.33% to NZD 1.4664.