Asian Stocks Begin 2023 on a Positive Note, but China Fears Restrict Gains

Investing.com– Most Asian stock markets showed gains on Tuesday, fueled by increasing expectations that U.S. interest rates will rise more slowly this year. However, uncertainty surrounding China’s economic reopening and concerns about a potential recession kept the overall gains in check.

China’s stock indexes saw increases of 0.2% and 0.7%, respectively, while Hong Kong’s index rose by 1.4%. Despite these gains, all three indexes plummeted between 14% and 21% in 2022.

Analysts anticipate that the Chinese economy may eventually recover following a reopening this year, but they predict short-term challenges as the country experiences a significant surge in COVID-19 cases. The Chinese leadership also expressed caution in its new year’s address, highlighting ongoing troubles related to COVID-19, which caught market participants off guard. Recent data indicated that manufacturing activity contracted for the fifth consecutive month in December.

The slowdown in China had repercussions for several Asian economies heavily reliant on it, contributing to a regional stock market downturn in 2022.

Nevertheless, there may be a glimmer of hope for regional stocks as the market expects the U.S. Federal Reserve to adopt a more measured approach to rate hikes this year. A series of recent economic indicators suggests that inflation may have peaked, indicating a potential shift in the Fed’s more hawkish stance.

Attention this week is focused on the minutes from the Fed’s December meeting and recent economic data that could impact monetary policy direction. Rising interest rates negatively affected Asian equities in 2022, resulting in most major indices concluding the year with losses.

Currently, markets are anticipating that the Fed will raise rates by a modest 25 basis points in February.

Overall, Asian stocks experienced upsides on Tuesday. Indices in India recorded a 0.1% increase each, bolstered by strong performance compared to their Asian counterparts last year. The broad regional index climbed by 0.6%, while many Southeast Asian markets also posted considerable gains.

However, market sentiment was tempered by warnings that at least one-third of the world could face recession risks this year due to elevated inflation and rising interest rates. Such a situation, particularly if there are delays in China’s economic reopening, may create additional challenges for Asian markets later in the year.