Asian stocks fall as China rebound stalls, Japan losses deepen

Investing.com-- Most Asian stocks retreated on Friday as a stimulus-driven rebound in Chinese shares stalled, while Japan’s Nikkei 225 slid further away from 34-year highs as growing bets on a Bank of Japan pivot spurred more profit-taking.

Caution before key U.S. inflation data due later in the day, and an upcoming Federal Reserve meeting next week also kept investors on edge over risk-driven assets. This saw regional markets largely shrug off positive cues from a record-high overnight finish on Wall Street.

Chinese stock rebound cools, PMIs in sight

A rebound rally in Chinese markets appeared to have run out of steam, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes falling slightly on Friday. The two rebounded sharply from five and four-year lows this week after the People’s Bank of China unexpectedly cut its reserve requirement ratio for local banks, freeing up about 2 trillion yuan ($140 billion) in liquidity.

The two Chinese benchmarks were set to add more than 2% each this week- their best weekly performance since July 2023.

Hong Kong’s Hang Seng index fell 0.3%, with heavyweight Tencent Holdings Ltd (HK:0700) among the top weights on the index after Citibank cut the internet giant’s price target, warning that a slowdown in China’s video game industry was likely to weigh on revenue.

The Hang Seng was set to add over 5% this week, as it rebounded from a 15-month low.

But analysts questioned just how much economic support more monetary stimulus would provide to the Chinese economy, given that consumer and business spending in the country remained weak. Business activity also failed to pick up substantially over the past year.

Purchasing managers index data for January is now due next week, and is expected to provide more cues on business activity at the beginning of the new year.

Japanese stocks sink on profit-taking, inflation cools further

Japan’s Nikkei 225 index was the worst performer for the day, down 0.9%, while the broader TOPIX index shed 0.8%.

The two indexes were set to end the week marginally lower, seeing a heavy degree of profit-taking after surging to 34-year highs earlier in the week.

Weakness in Japanese shares came following somewhat hawkish signals from the BOJ, specifically Governor Kazuo Ueda. Ueda said that while the bank will maintain its ultra-dovish policy in the near-term, an end to the bank’s ultra-low interest rates was in sight, especially as inflation moved closer to the bank’s 2% annual target.

Softer-than-expected inflation data from Tokyo furthered this notion on Friday, with core inflation falling well below 2% for the first time in over 20 months.

While the timing of the BOJ’s potential pivot remained uncertain, any increases in Japanese interest rates portends an end to nearly a decade of ultra-loose monetary conditions enjoyed by local stocks. A dovish BOJ was a key driver of Japan’s stellar stock rally through 2023.

Broader Asian markets were mixed. Southeast Asian stocks marked steep losses, with Indonesian markets leading losses with a 1% decline.

South Korea’s KOSPI was an outlier for the day, surging more than 1% as it rebounded from a two-month low hit earlier in January.

Indian and Australian markets were closed.

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