Asian equities could trade positively despite mixed trade on Wall Street as China’s PMIs yesterday helped to bring solid gains in China’s onshore equity indices yesterday. The Golden Dragon ETF climbed nearly 3% on Wall Street. The Yuan was and could continue as a good risk-on proxy as it rose 1% as stock-tied inflows were +7bn Yuan for yesterday’s session. Investors are also digesting with a pinch of salt some reports that stated the China authorities had been surprised by the pace of the economic recovery, especially due to the Covid wave peaking earlier than expected. The piece also brings some headwinds for future easing policy from the PBoC and extra fiscal support from the government. It added that the recent surprise with economic resilience might limit further stimulus measures, at least in the near term.
Although flows to China’s equities accelerated after month-end trade and stronger PMIs yesterday, it is worth noting that traders could hedge some tail-risk as US stocks traded under pressure due to the persistent inflationary concerns after the string of hot January data prints. There was also a hawkish comment from Fed’s Kashkari, who pointed out he is open to a 25bps or 50bps hike in March and voiced he is tilting towards a higher Fed terminal rate than his 5.4% dot in December. Also, risks from the geopolitical front should be monitored as the US is reportedly lobbying allies on possible China sanctions if Beijing gives Russia military aid in Ukraine.
