Asian Investors Gain Confidence in Equities

Asian stock markets saw strong gains in Monday trading, erasing much of the losses suffered in August as a number of encouraging data points emerged from China, Japan, and Ukraine.

Asian stock markets saw strong gains in Monday trading, erasing much of the losses suffered in August as a number of encouraging data points emerged from China, Japan, and Ukraine.

Investors bought stocks in Chinese, Japanese, and Korean companies at a strong pace in Monday’s trading, while futures for American and European stocks also rallied. The strong demand was driven in large part by evidence that the Chinese government had room to ease monetary policy and allow greater liquidity in its economy, and Japan’s largest pension fund announced it would be buying more stocks in the coming months. Easing tensions in Ukraine also hinted that systemic risks were diminishing on geopolitical uncertainty.

China’s Loose Monetary Policy Spurs Asia Rally

Asian stocks rose to levels unseen in nearly two months, with investors gaining confidence in the region and in growth-focused monetary policies in China that could encourage more development in the country.

China’s consumer price index rose 2.3% on a year over year basis in July, according to government officials. The Chinese yuan also rose to 82.81 in the second quarter. Home prices in the country are also rising. According to the China Times, Shenzhen may remove regulations that capped home prices, which could cause prices to rise in the city and cause speculators to bid up prices for property elsewhere in the country.

Sunac China Holdings Ltd., a large development company exposed to the Shenzhen market, rose 9.3% in Monday’s trading. The Shanghai Composite Index rose 1.4%.

Tokyo Pension Fund to Buy Equities

In Japan, the Topix Index rose nearly 2% after a sharp correction in early August, but remains below its high in early January. While fears that Japan’s so-called Abenomics program of monetary stimulus was not bearing fruit had caused the Topix to make a steep correction in early 2014, geopolitical tensions and perceived instability in China had only caused investors to worry more.

Today, the Japanese Government Pension Investment Fund announced it would temporarily remove a cap on investing in local stocks, allowing it to buy more Japanese equities than its current holdings. Investors saw this as an indicator that demand for Japanese stocks is likely to rise. Currently, the fund invests 12% of its assets in local stocks, but will increase its allocation to 20% in September. The $1.2 trillion investment fund will likely invest as much as $96 billion in the Japanese stock market.

Fullcast Holdings Co. had the biggest gains in the Topix as it raised its guidance for operating profit in 2014. The company also canceled its mid-term dividend.

Ukraine Tensions Ease, Boosting Asia

In Ukraine, the nation’s military has asked rebels in the east to surrender after the pro-Russian fighters asked for a cease-fire over the weekend. Russia has voiced support for a cease-fire, but the Ukrainian government has said it rejects the request. On Sunday, Ukrainian leaders ordered a more aggressive military assault in the east, with soldiers moving into rebel-occupied areas immediately.

Asian stocks have also been bolstered by Ukraine’s government gaining control of the east, as the move has helped calm investors who worried that growing tensions over the region and greater Russian power in the region could cause the conflict to escalate and bleed over into the eastern EU nations. European indices were broadly up on early Monday trading, and U.S. futures also suggested equities would rise in Monday trading.