The rise of Asian stock markets under the influence of China’s stimulus and the fall of Japanese stocks

In Asia stock market rose Monday, led by Chinese indexes, after the government announced further stimulus measures, while stocks in Japan fell on fear of a more restrictive monetary policy. China’s blue-chip Shanghai Shenzhen CSI 300 index was the best performer in Asia, rising 2% to a nearly five-month high after the People’s Bank of China injected more liquidity into the banking system. The move came ahead of an expected increase in liquidity during the Lunar New Year vacation.

Markets viewed the liquidity injection as a sign that the Chinese government is planning more austerity measures as the country grapples with its worst-ever COVID -19 outbreak.

The Chinese economy is expected to recover this year after most measures against COVID were eased and the country reopened its borders last week. Local stocks have soared since December on that assumption.
Attention now turns to a series of important economic data to be released later this week. The Chinese economy is expected to recover this year. However, markets are concerned about a slowdown in other major economies, especially if the effects of drastic monetary tightening are felt by 2022.

Corporate earnings report for the fourth quarter will also be in focus. Markets will be watching to see if the slowdown affects major companies’ results.