Markets across Asia rallied yesterday off the back of the better than expected August economic data from China and the new banking capital rules that are seen as having a modest impact on banks across the region.
Tokyo’s Nikkei rose 0.9%, the Australian market was up 1.2%, Hong Kong was up 2%, Shanghai,just over 1% and South Korea also ended higher.
European and US markets closed higher as well.
The solid economic numbers out of China also propelled the Australian dollar to a four month high against the greenback of more than 93.50 USc in European and US trading.
It may have been co-incidence but the Yuan hit its highest level ever yesterday as the Chinese government allowed it to firm sharply (by recent standards since the peg was changed in June).
The central parity rate of the Yuan rose by 116 basis points to 6.7509 per US dollar yesterday from 6.7625, according to the China Foreign Exchange Trading System.
The rate had been steady to slightly weaker in the weeks before the data release on Friday and Saturday.
It was as though the Chinese authorities made the adjustment to send a message that the August data’s stronger look of higher than expected imports and industrial production, plus falling house prices (but higher consumer inflation) did indeed reflect a stronger performing economy.
Some US critics of the Chinese currency policy, had resumed agitating over the lack of any strengthening in the value of the Yuan, despite signs the Chinese economy was landing softly and not in some sort of freefall, as other analysts had contended might very well happen as a result of the tightening of monetary policy and restrictions on the housing sector.
The rise in the value of the Yuan, because it is officially sanctioned, also tells us the Chinese do not want another trade brawl with the us ahead of the mid term elections in November.
Despite speculation that mounting inflationary pressures could trigger an interest rate rise, analysts say China’s rising prices alone will not prompt further tightening as had been feared last weekend.
The stronger Chinese figures helped oil to a one month high of $US77.30 in Asia yesterday, the highest price since August 12.
Banks including Japan’s top lender Mitsubishi UFJ Financial Group and the Australian quartet of the NAB, CBA, Westpac and ANZ all enjoyed good days yesterday.
Markets were reassured that banks would have enough time to comply, with transition periods in some cases extending to January 2019-2023.
The National Australia Bank was leading gains with its shares up 1.7% at $25.07 while Westpac shares were 1.4% higher at $23.25.
According to figures from Deutsche Bank’s Australian analysts yesterday, ANZ has the highest levels of capital among the Australian banks, with a common equity ratio to the equivalent of 11.1% (7% minimum in the new rules). The ANZ’s shares rose 1.27% to $24.01, a rise of 30c on the day.
The Commonwealth Bank is lower at 10.1%. The shares rose 84c, or 1.6%, to $53.51 yesterday.
NAB has 9.4% common equity ratio under the new rules, the shares jumped 2.2%, or 55c, to $25.22.
Westpac is the lowest with 8.6%, according to the Deutsche figures. Its shares rose 45c, or 2%, to $23.39.
APRA, our bank regulator, will write to the banks in coming weeks to start consultations on how the new rules will be implemented and if there are to be any special capital rules applied to individual banks.
