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No negative feedback loop from BOJ’s tapering guidance; Hong Kong & China Tech outperforms

Despite the closure of US stock market yesterday, 18 January for a public holiday, Asian stock markets were still able to find a solid footing where most major benchmarked indices recorded stellar gains as at today mid-session with the exception of China.

Top performers were the Hong Kong indices for the second consecutive day; Hang Seng Index + 2.30% (29540, a 12-month high) and Hang Seng TECH (a composite of China Big Tech stocks) +3.15% (9403, fresh all-time high). Japan’s Nikkei 225 rose +1.32% (28617), South Korea’s KOSPI 200 recovered + 2.63% (421.24) almost all of yesterday losses inflicted by Samsung Electronics after a South Korean court sentenced its Vice-chairman Lee Jae-yong to 30 months in prison over bribery charges.

Australia’s ASX 200 rallied by +1.19% (6742) and a modest gain of +0.34% for Singapore’s STI. China’s CSI 300 underperformed so far with a loss of -1.03% (4541) due to a potential consolidation phase that is setting in after its recent sharp rally of 11% recorded from 29 December 2020 to 13 January 2021. The current modest gain seen in the Singapore’s STI had been attributed by losses seen in property related constitute stocks; UOL (-0.76%) and CapitaLand (-0.58%) after Singapore’s Deputy Prime Minister (DPM) Heng Swee Keat commented in a real estate developers event yesterday that authorities will remain “vigilant” due to an uncertain economic outlook and “do not want to see property market run ahead of the underlying economic fundamentals” Latest data had indicated that home prices in Singapore rose to the highest in more than two years in Q4 2020, a full-year increase to more than 2% in 2020. Hence, the latest comments from DPM Heng had sparked fears of another potential round of cooling measures targeted on Singapore’s property market.

Meanwhile as reported by Reuters according to sources that Japan central bank, BOJ will consider tweets to its current ultra-loose monetary policy via scaling down in the amount of exchange traded funds (ETF) in the upcoming March policy review meeting. There had been rising concerns over the ballooning size of the central bank’s ETF holdings which at 35 trillion yen since the programme started in 2010 that account for almost 80% of Japan’s ETF market. In addition, BOJ may also consider to loosening its grip on yield curve control to allow long interest rates to rise more.

So far such potential “monetary easing tapering” guidance from BOJ has not created a negative feedback loop into risk assets and BOJ has started to slow down its ETF purchases in the last 12 months with an accumulated amount of only 7143.9 billion yen, way below the targeted annual pace of 12 trillion yen. Also, it can create a positive feedback loop into the markets that BOJ is “confident” in the current pace of economic recovery and the flexibility to deploy more “effective” monetary ammunitions in times of systemic stress.

Bank of Japan ETF purchases has started to slow down

Source: Bloomberg