By Kosaku Narioka
Japanese stocks led Asian markets higher Monday, driven by relatively solid earnings results, despite some uncertainty about the U.S. Federal Reserve’s pace of interest-rate increases following U.S. jobs data Friday.
Japan’s benchmark Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK +1.83% rose 1.1%. Thailand’s SET /zigman2/quotes/210598047/delayed TH:SET -0.14% was recently up 0.4%. India’s Sensex /zigman2/quotes/210597966/delayed IN:1 +1.29% was up 0.1%. Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO -0.71% ended down 0.01%. Many markets in Asia were closed for the Lunar New Year holiday.
The Japanese market was buoyed by buying of undervalued individual stocks with solid earnings.
Japanese companies listed on the first section of the Tokyo Stock Exchange were projected to log a combined 3.4% on-year rise in net profit for the year ending March, according to SMBC Nikko Securities. The data cover the 71% of companies whose fiscal year ends in March that had released earnings as of Feb. 5.
Nonetheless, the Nikkei had fallen 12% for the year to date through Friday. That put the index at a 12.8 times the next 12 months’ earnings, according to S&P Capital IQ.
“Individual stock-picking is helping the index turn positive,” said Takashi Hiratsuka, group leader of the asset management division at Resona Bank. “Monetary policy had been a primary focus, but that wouldn’t continue for good.”
Nippon Telegraph & Telephone Corp. /zigman2/quotes/200718273/delayed JP:9432 +1.72% rose 2.6% after posting stronger earnings.
Friday’s U.S. data showed slower job growth but decent wage inflation, which complicates the Fed’s policy outlook. The pace of U.S. tightening has been a big concern since the Fed raised rates in December.
“The Fed’s raising rates further in March isn’t the main scenario, but that possibility is still left open,” said Soichiro Monji, general manager for economic research at Daiwa SB Investments.
Slowing growth in China, recent sharp falls in crude oil prices and the fallout for the energy industry and oil-producing countries have also been major concerns for investors.
Crude oil prices remain sharply lower compared with several months ago, but the pace of falls might be easing. New York Mercantile Exchange, light, sweet crude futures for delivery in March /zigman2/quotes/209724118/delayed CLH26 0.00% traded at $30.86 a barrel, down three cents from the previous close.
Gains in energy and mining stocks helped Australia’s equities market. Rio Tinto Ltd. /zigman2/quotes/200083756/delayed AU:RIO -0.98% /zigman2/quotes/208934945/delayed UK:RIO +2.05% added 2.2%. BHP Billiton Ltd. /zigman2/quotes/201448516/delayed AU:BHP -1.68% rose 1.1%. In India, banking stocks staged a recovery after the government Friday set a minimum import prices on various steel products to check cheap Chinese and Russian metal imports. This eased concerns about bad debt at Indian banks that had lent heavily to large metal and manufacturing conglomerates. Axis Bank Ltd. /zigman2/quotes/201696668/delayed IN:532215 +1.26% was up 4.6%. State Bank of India /zigman2/quotes/206945693/delayed IN:500112 +1.79% was up 4.6%.
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After years of central bank stimulus that helped lift stocks and commodities, the Fed’s policy path may be narrow. The sharper pickup in wage growth could prompt the central bank to raise rates soon to cool economic activity, a move that tends to be negative for stocks.
Continued declines in the unemployment rate should ultimately put some pressure on the Fed to maintain a bias toward gradual policy tightening, RBC Capital Markets said in a report.
Meanwhile, a cautious Fed stance might be taken as a sign it is worried about the economic outlook, eroding market confidence. Senior Fed officials suggested last week that slower overseas economies might drag on U.S. growth.
The U.S. dollar /zigman2/quotes/210673925/realtime XX:BUXX -0.36% has risen since the jobs data, factoring in a higher probability of an additional rate rise. The dollar was at ¥117.28 in late Asia, up from ¥116.82 late Friday in New York. The euro was at $1.1139, down from $1.1160.
Federal Reserve Chairwoman Janet Yellen will update the U.S. Congress on monetary policy Wednesday and Thursday.
Japanese government bonds pulled back, a respite in the recent ascent following the Bank of Japan’s adoption in late January of a negative rate on some excess reserves by banks. The benchmark 10-year yields were up 1.5 basis point to 0.040%. The 10-year Australian government bond yields were up 4.7 basis points to 2.587%.
Australia and New Zealand Banking Group debt strategist Martin Whetton said Japanese investors were still coming to terms with the BOJ’s latest move, and the potential for more policy easing. He said they felt a growing urgency to find yield, potentially helping out the Australian dollar as a destination for capital flows.