Asian markets experienced a significant uptick on Friday, spurred by a decline in US recession fears, reversing a sharp market downturn from earlier in the month. Japan’s Topix index surged by 3%, while the technology-focused Nikkei 225 rose by 4%. This positive momentum was mirrored across other Asian markets, with stocks in Australia, Hong Kong, Taiwan, and South Korea all posting gains.
In Europe, futures for the Euro Stoxx 50 were up by nearly 0.5%, while US markets saw S&P 500 and Nasdaq 100 futures climb by 0.3% and 0.4% respectively. The rally followed a strong performance in US stocks on Thursday, where positive retail sales data and robust earnings from Walmart bolstered investor confidence. The S&P 500’s 1.6% rise wiped out its losses for August.
Prashant Bhayani, the chief investment officer for Asia at BNP Paribas Wealth Management, attributed the market recovery to a combination of strong US economic data, a stabilised yen, and stable geopolitical conditions. He also noted improvements in Japanese economic indicators and gains in South Korea and Taiwan, driven by stronger US technology sector performance.
Japanese tech stocks were notable performers, with Fujikura, a company benefiting from the AI boom, soaring over 10% to a record high. Renesas Electronics, Disco, and Tokyo Electron also saw substantial gains, spurred by a 5% increase in the US Philadelphia Semiconductor index on Thursday.
The yen, which had weakened to ¥149 against the dollar following a period of strength in early August, saw renewed interest from hedge funds. Traders in Tokyo noted a resurgence in the yen carry trade, where investors borrow in yen to invest in higher-risk assets, taking advantage of Japan’s low interest rates. This strategy, which had contributed to the global sell-off at the start of the month, appeared to be making a comeback, though on a much shorter time frame.
US retail sales rose by 1% in July, far exceeding economists’ predictions of a 0.3% increase and marking the strongest growth in a year and a half. Walmart’s positive earnings report, which included a 4.2% year-on-year increase in same-store sales, further boosted investor confidence. In response, yields on the 10-year US Treasury slightly decreased to 3.90%, while the two-year yield dropped to 4.07%, reflecting a rise in bond prices.
Analysts noted that the strong retail sales figures eased concerns about an imminent US recession. However, they cautioned that while the recent data has fuelled market optimism, there is still a risk, particularly among lower-income consumers who are feeling the strain. Brian Arcese, a portfolio manager at Foord Asset Management, advised maintaining a cautious approach, suggesting a preference for defensive sectors like utilities or investment in regions outside the US.
Fidelity Asian Values Plc (LON:FAS) provides shareholders with a differentiated equity exposure to Asian Markets. Asia is the world’s fastest-growing economic region and the trust looks to capitalise on this by finding good businesses, run by good people and buying them at a good price.
