Asian Stocks Digesting US Banking Woes, China Outperforms

Asian stocks crept higher on Monday as markets gauged the potential fallout from a banking crisis in the U.S., while Chinese indexes outperformed as the government promised more support for the economy.

China‘s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rose about 0.8% each, while Hong Kong’s Hang Seng index rallied over 2% after new Premier Li Qiang sought to reassure the private sector with the promise of easier policies, and that the government will ensure that its annual economic projections are met.

Li's appointment comes as Xi Jinping is officially elected President for a third consecutive term. The president also retained his top ministers of finance and commerce, including People's Bank Governor Yi Gang. The move helped reassure investors that China's post-COVID reopening is likely to go ahead, potentially triggering an even bigger economic renaissance this year. But readings on the economy so far paint a mixed picture of the recovery.

The move helped reassure investors that Chinas post-COVID reopening will likely remain on course, potentially heralding a bigger economic bounceback this year. But readings on the economy have so far painted a mixed picture of a recovery.

Still, Chinese property stocks slumped after heavyweight Country Garden Holdings Company Ltd (HK:2007) warned of a bumper loss in 2022, due to a downturn in the sector.

While a Chinese recovery bodes well for broader Asian markets, markets were largely focused on a brewing banking crisis in the U.S., following the collapse of Silicon Valley Bank (NASDAQ:SIVB) and its seizure by regulators.

U.S. regulators intervened over the weekend to reassure markets and stem a bigger fallout from the collapse.

But the prospect of more ructions in the U.S. banking sector saw markets pricing in a greater chance that the Federal Reserve will taper its hawkish rhetoric in the coming months. Most Asian stocks advanced slightly on this notion, with technology-heavy bourses such as South Koreas KOSPI and the Taiwan Weighted index adding 0.3% and 0.2%, respectively.

Fed Fund futures showed a greater chance that the Fed will hike by 25 basis points next week, down from expectations for a raise of 50 bps. Focus is now on an emergency meeting convened by the Fed later in the day, as well as consumer price index (CPI) inflation data due on Tuesday.