Asian stocks buoyed by China optimism ahead of Lunar New Year

© Reuters.

By Ambar Warrick

Investing.com -- Most Asian stock markets rose on Friday and were set for a strong weekly performance amid growing optimism over a Chinese economic recovery this year, although fears of a potential global recession kept gains constrained.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose 0.5% and 0.6%, respectively, with markets positioning for a major economic boost from the week-long Lunar New Year holiday - especially after the country relaxed most anti-COVID restrictions. The indexes were also set to add over 2% for the week, their fourth straight week of gains.

Hong Kong’s Hang Seng index was the best performer for the day, rising 1.1%, and was headed for a weekly gain of 0.7%.

Chinese stocks have been on a tear since December, as traders bought into heavily discounted stocks on the prospect of a major economic recovery this year. Gains in local stock markets have persisted even as the country faces its worst-yet COVID-19 outbreak.

The Chinese government is also doling out more spending measures to shore up growth. The People’s Bank of China kept its benchmark loan prime rate at historic lows on Friday, keeping liquidity conditions flush for a fifth straight month as it moves to support local growth.

Broader Asian stock markets also rose on Friday, with Japan’s Nikkei 225 index rising 0.5% even as data showed consumer price inflation rose to a 41-year high in December.

The Nikkei was set to add 1.5% this week after the Bank of Japan bucked market expectations for more tightening in its monetary policy, pointing to accommodative conditions for local stocks.

But markets are now speculating whether rising inflation in the country will push the BOJ into eventually hiking interest rates from record lows.

South Korea’s KOSPI index rose 0.5%, while Australia’s ASX 200 index added 0.2%.

Local stocks largely brushed off a weak lead-in from Wall Street indexes, which plummeted for a second straight session overnight amid growing fears of a U.S. recession.

A swathe of economic data this week showed that the world’s largest economy was slowing in the face of tight monetary policy and relatively high inflation.

Several Federal Reserve speakers also warned this week that U.S. interest rates are set to keep rising in the near-term, and that a dovish pivot by the central bank was a distant prospect.

A potential recession bodes poorly for Asian stock markets, with capital flows into the region likely to dry up in such an event.