Bourses across Asia rebounded yesterday to end a volatile few days on a high note, but the damage from Black Monday's savage sell-off still left many in the red for the week.
Investors were looking for some good cheer yesterday and they found it in spades. A strong lead from Wall Street following better- than-expected United States gross domestic product data gave Asia's relief rally a jolt of momentum before China chipped in with more.
News that the People's Bank of China bought blue-chip stocks and requested state-owned banks to buy more yuan on its behalf revved up sentiment, as did an announcement that Chinese pension funds will invest US$313 billion (S$439 billion) in stocks and other assets as soon as possible.
Some market watchers suspect the Chinese rally was fuelled by the government wanting to give investors something to cheer about ahead of a parade commemorating the 70th anniversary of the end of World War II next week.
China's markets will be closed next Thursday and Friday for a national holiday to mark the event.
STILL POSITIVE ON CHINA FIRMS
Although this market had been the source of consternation of late, it had outperformed in the recent correction. Most Chinese companies' earnings should not be adversely impacted by the weaker yuan as cost and revenues are balanced, with many of their sales generated domestically. We are also neutral on (South) Korea, Taiwan and Singapore, but remain firmly negative across South- east Asia, especially for Malaysia and Indonesia.
CREDIT SUISSE, in a report yesterday
Whatever the causes, markets in the region took the hint and headed north yesterday. The Straits Times Index closed on a positive note, up 0.36 per cent at 2,955.94, although it was down 0.5 per cent for the week after diving 4.3 per cent on Monday - its worst day since an 8.3 per cent plunge in October 2008.
While Shanghai rallied 4.8 per cent after a 5.4 per cent gain on Thursday, it closed 7.9 per cent lower for the week. Shenzhen was down 9.4 per cent for the week, while Hong Kong was off 3.6 per cent.
Credit Suisse noted yesterday that it still favoured China shares.
"Although this market had been the source of consternation of late, it had outperformed in the recent correction," it said.
"Most Chinese companies' earnings should not be adversely impacted by the weaker yuan as cost and revenues are balanced, with many sales generated domestically.
"We are also neutral on (South) Korea, Taiwan and Singapore, but remain firmly negative across South-east Asia, especially for Malaysia and Indonesia," it said.
Higher oil prices also contributed to the positive mood in Asia.
"But there's still a lot of uncertainty: Whether China's stimulus measures are enough to jump-start the economy; rate hike fears; commodity prices have not yet recovered despite the rise in oil prices yesterday. If commodity prices remain low, then that signals growth is very dismal," said remisier Alvin Yong.
Overall sentiment remains fragile amid mixed signals from US Federal Reserve officials at a key meeting in Jackson Hole, Wyoming, on when interest rates should be raised."For gains to be sustainable, there needs to be confirmation that the rate hike won't happen this year, or if there is expansion in the European Central Bank's (quantitative easing) programme," Mr Yong added.
Traders are watching for signals from the Jackson Hole summit this weekend while China is set to release manufacturing data on Tuesday.