Asian shares up after MSCI announces China weighting boost

 Man is seen in front of an electronic board showing stock information on the first day of trading in the Year of the Pig at a brokerage house in Hangzhou - Reuters 

SHANGHAI (Reuters): Asian shares rose on Friday, driven by a rally in Chinese markets after index publisher MSCI announced it would boost the proportion of mainland shares in its global benchmarks, while strong US economic data helped the dollar higher.

Chinese shares rallied, with the blue-chip CSI300 index adding 1.2% after MSCI said it would quadruple the weighting of mainland shares in its global benchmarks later this year, potentially drawing more than $80 billion of fresh foreign inflows to the world’s second-biggest economy.

That, along with strength in other markets in the region, helped push MSCI’s broadest index of Asia-Pacific shares outside Japan up more than 0.3%.

The boost in mainland stocks on Friday follows a strong run for Chinese shares, which posted their strongest month in nearly four years in February, largely driven by investor hopes for government stimulus and policy support, as well as optimism over US-China trade talks.

“Just two months ago China was facing one of the worst years it’s ever had in terms of equity market performance. So I think investors are taking very seriously the fact that the rebalancing of MSCI is happening,” said Jim McCafferty, head of equity research, Asia ex-Japan at Nomura.

“There’s a disconnect between China’s place in the world economy and China’s place in the world’s stock markets. And the two things can’t be diverged for so long,” he said.

Elsewhere in the region, Japan’s Nikkei 225 gained 0.9%, helped by a weaker yen, while Australian shares added 0.6%.

The gains in Asia contrast with a weaker finish on Wall Street on Thursday. The Dow Jones Industrial Average fell 0.27% to 25,916 points, the S&P 500 lost 0.28% to 2,784.49 and the Nasdaq dropped 0.29% to 7,532.53.

US President Donald Trump on Thursday fueled concerns over trade talks between the United States and China, warning that he could walk away from a trade deal with China if it were not good enough. But in subsequent comments Thursday, White House economic adviser Larry Kudlow called progress in the negotiations “fantastic” and said the countries were “heading towards a remarkable, historic deal.”

Mixed messages on trade combined with the collapse of the summit between US President Donald Trump and North Korean leader Kim Jong Un on denuclearisation, and data from China showing slowing factory activity to pressure US stocks.

“News that President Trump walked out of the meeting with Supreme Leader Kim, because the two sides couldn’t reach an agreement over North Korea’s nuclear disarmament, dashed hopes for an easing in geopolitical tensions,” analysts at ANZ said in a morning note.

South Korea’s financial markets are closed Friday for a public holiday.

Higher yields

Better-than-expected US economic growth in the fourth quarter had little impact on US stocks. Gross domestic product rose 2.9% for the year, just shy of the 3% goal set by the Trump administration.

The GDP data lifted yields on benchmark 10-year Treasury notes. After rising to a high of 2.7222% on Friday, the yield eased to 2.7168%, still up from a US close of 2.711% on Thursday.

Dallas Federal Reserve Bank President Robert Kaplan said on Thursday that it will take time to see how much the US economy is slowing, supporting views of the Fed’s rate-hike holiday at least through to June.

The dollar also rose on the US data, adding 0.29% against the yen to 111.69, a new high for the year.

The dollar index which tracks the greenback against major rivals, was up 0.1% at 96.268.

In commodity markets, US crude added 0.28% to $57.38 a barrel, and Brent crude rose 0.32% to $66.52 per barrel.

Spot gold was higher at $1,313.30 per ounce.