By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — Asian markets advanced Monday after China removed a floor on banks’ lending rates and Japan’s ruling government regained control of the parliament’s upper house, raising hopes for further reforms in both economies.
Japan’s Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK -0.48% rose 0.5%, the Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP +2.31% added 0.6% and Hong Kong’s Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +5.24% edged 0.3% higher, with each overcoming volatility that dragged them into losses earlier in the day.
“Longer-term investors will take heart from the improved potential for structural reform in Japan and China’s abolition of minimum bank lending rates,” said CMC Markets chief market analyst Ric Spooner.
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The performance in Tokyo came after the ruling Liberal Democratic Party’s coalition easily won a majority of the 121 seats contested in the upper house elections over the weekend. The victory gave Prime Minister Shinzo Abe’s LDP control over both houses, consolidating its political power.
Telecommunication and insurance shares advanced, although a strengthened yen weighed on some exporters.
Shares of Softbank Corp. /zigman2/quotes/207303954/delayed JP:9984 -1.37% /zigman2/quotes/202815238/composite SFTBF +4.37% climbed 0.9%, Nippon Telegraph & Telephone Corp. /zigman2/quotes/200718273/delayed JP:9432 -1.03% gained 1.3%, and MS&AD Insurance Group Holdings Inc. /zigman2/quotes/203653851/delayed JP:8725 +0.34% /zigman2/quotes/209008763/composite MSADY -0.24% rose 1%.
On the downside, Nissan Motor Corp. /zigman2/quotes/208298710/delayed JP:7201 -1.69% /zigman2/quotes/207656007/composite NSANY -1.52% eased 0.7%, Mitsubishi Heavy Industries Ltd. /zigman2/quotes/202419396/delayed JP:7011 +1.45% /zigman2/quotes/206985358/composite MHVYF -1.40% retreated 4.1%, and Renesas Electronics Corp. /zigman2/quotes/203872935/delayed JP:6723 -2.66% /zigman2/quotes/201351352/composite RNECY -2.45% dropped 3.4%, as the U.S. dollar /zigman2/quotes/210561789/realtime/sampled USDJPY -0.1533% fell to around the ¥100-level.
Big victory for Japan's Prime Minister Shinzo Abe
Japanese Prime Minister Shinzo Abe's ruling bloc wins a majority in Sunday's upper-house election.
HSBC’s co-head of Asian economic research Frederic Neumann said the real test for Prime Minister Abe’s administration lay ahead, as he must urgently implement far-reaching reforms to revive the economy.
“No matter whether [Abe] succeeds in the coming quarters or not, there is one effect that will be keenly felt: Japanese money will increasingly wash over Asia,” he wrote in a note to clients.
Chinese shares turned volatile, meanwhile, as analysts said the People’s Bank of China’s decision late Friday to abandon a floor on the rates bank could charge on their loans marked a structural reform, but one that wouldn’t significantly affect bank earnings nor provide help to the economy.
“We believe this is the easy part of interest-rate deregulation, but nevertheless is an important first step in the right direction for structural reforms,” Credit Suisse economist Dong Tao wrote in a report. “Removing the deposit-rate ceiling would be more significant to the economy and banking sector than removing the floor to the lending rate.”
China currently caps the interest rates that banks pay on deposits, a factor that often pushes savers toward riskier investments in search of higher returns.
/zigman2/quotes/208058581/delayed 601939 5.60, +0.12, +2.19%
/zigman2/quotes/210598127/delayed SHCOMP 3,149.75, +71.20, +2.31%
Credit ratings agency Moody’s Investors Service said that while the removal of the lending rate marked an important step in China’s financial reforms, removal of the lending rate floor was a credit negative for banks. “It is another move towards interest rate deregulation that will narrow their net interest margins,” Moody’s said.
In Monday trade, shares of China Construction Bank Corp. /zigman2/quotes/208058581/delayed CN:601939 +2.19% /zigman2/quotes/207732534/composite CICHY +2.12% lost 0.2%, and those of Industrial & Commercial Bank of China Ltd. /zigman2/quotes/202525815/delayed CN:601398 +1.89% /zigman2/quotes/202401350/composite IDCBY +2.59% shed 0.5% in Shanghai.
Shares of metals companies advanced after gold and copper prices rose Friday in the U.S. Jiangxi Copper Co. /zigman2/quotes/201334192/delayed CN:600362 +1.64% /zigman2/quotes/204256025/composite JIXAY -2.45% climbed 2% and Zijin Mining Group Co. /zigman2/quotes/203833875/delayed CN:601899 +3.03% /zigman2/quotes/209836076/composite ZIJMF +5.82% added 2.5% in Shanghai; in Hong Kong, Zhaojin Mining Industry Co. /zigman2/quotes/203361399/delayed HK:1818 -1.96% /zigman2/quotes/200275285/composite ZHAOF +7.67% rose 4.5% and China Molybdenum Co. /zigman2/quotes/202330604/delayed HK:3993 +4.75% advanced 1.1%.
Elsewhere, Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO +0.33% rose 0.6% and South Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 +1.04% added 0.5%, with the Australian shares propped up by the mining and financial sectors.
Commonwealth Bank of Australia /zigman2/quotes/200638713/delayed AU:CBA -0.36% /zigman2/quotes/207018701/composite CBAUF +4.06% gained 0.6%, and Macquarie Group Ltd. /zigman2/quotes/206727308/delayed AU:MQG -0.25% /zigman2/quotes/204353811/composite MCQEF +0.11% rose 3.3%, while gold miner Newcrest Mining Ltd. /zigman2/quotes/203840223/delayed AU:NCM -0.10% /zigman2/quotes/206026738/composite NCMGF +2.51% jumped 7.5%.
Asia’s performance came after the Standard & Poor’s 500 Index /zigman2/quotes/210599714/realtime SPX -0.14% marked modest gains in the U.S. on Friday, though weakness for Microsoft Corp. /zigman2/quotes/207732364/composite MSFT -0.75% helped drag down the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.0085% .