Reuters - China shares indexes led Asia markets higher Monday as market participants bet on a steady recovery for the world's No. 2 economy. However, caution about U.S. stimulus kept the dollar firm and a central bank policy tweak unwound some of the yuan's gains.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8% to two-and-a-half year highs thanks to a 2% gain in China blue chip company shares and a 1.5% rise by Hong Kong's Hang Seng index. Japan's Nikkei slipped 0.3% as market participants fretted about corporate earnings.
"If capital is moving on relative growth rates, then China is looking quite attractive," Chris Weston, head of research brokerage Pepperstone in Melbourne, said. Equities are cheap, yields advantageous and the outlook solid, he said.
"From a virus perspective as well, we're seeing concerns in Europe, while China is considered a quasi-safe haven."
China has returned from an eight-day mid-Autumn festival with market participants encouraged by a robust rebound in tourism and ebbing coronavirus cases.
Qingdao city said Monday it would conduct COVID-19 tests for the entire population of more than 9 million people over five days after a small number of new cases.
Elsewhere, in the U.S. Midwest, infections are at records and the World Health Organization is encouraging fresh curbs for Europe.
Coronavirus aid plans in the U.S. are also in disarray with the Trump administration Sunday calling on Congress to pass a stripped-down relief bill while talks on a more comprehensive proposal were again at an impasse.
S&P 500 futures were even in the Asia session while Europe futures were higher.
"The economic fallout of COVID-19 has accelerated the relative decline of the U.S. as the world's economic engine," ANZ chief economist Richard Yetsenga said. "It is also increasing the centrality of Asia - and particularly of China."
China blue chip company share prices have gained nearly 17% this year compared with an almost 8% gain by the S&P 500. Foreigners' buying of China government bonds hit its fastest in more than two years in September.
In currency markets, a 0.4% drop in the yuan dragged the China-sensitive Australian dollar lower and underpinned small, but broad, gains for the dollar against other significant currencies.
The People's Bank of China has scrapped a requirement for banks to hold a reserve of yuan forward contracts - removing a guard against depreciation.
Traders said that suggested authorities were unhappy with recent gains in the currency. However, the lack of an aggressively weaker setting of the onshore trading band cooled some of those concerns and the yuan pared losses a little.
The yuan is up more than 7% since late May and was higher Friday as market participants wagered that a Joe Biden presidency would drive smoother China-U.S. relations. It was last at 6.7211 a dollar in onshore trade.
"We continue to expect a stronger yuan on the back of our expectation of solid Chinese growth and favorable interest-rate differentials between China and the U.S.," Goldman Sachs said in a note with a 12-month yuan forecast at 6.50.
The euro was 0.1% lower at $1.1816 and the yen was steady at 105.55 a dollar. The kiwi dipped 0.1% with the softer yuan to sit at $0.6661.
In commodity markets, oil prices were back under pressure after the resolution of an oil workers' strike in Norway and the resumption of production after a storm in the Gulf of Mexico. Brent crude futures slipped 0.9% to $42.48 a barrel and U.S. crude futures were down about 0.8% at $40.26.
Gold held Friday gains at $1,927 an ounce as market participants stuck with bets that U.S. stimulus would eventually arrive and drive inflation to the benefit of bullion.
The U.S. bond market is closed Monday for Columbus Day.
