Asia Stocks Recover Losses on China Boost

Asian stocks pared back losses on Friday as China efforts to boost investor confidence helped its share markets rally, although the data showing the world’s second-largest economy growing at the slowest pace since 2009 put a lid on broader gains.

Shanghai Stock market in China

The MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.3 percent after its earlier drop of as much as 0.9 percent ahead of the release of China’s most recent GDP reading.

Spread betters in Europe expect shares in Germany, which is known for big exporters that are sensitive to the health of China’s economy, to fall at the open, with the DAX seen beginning the session lower 0.15 percent. France’s CAC 40 is expected to open 0.04 percent lower, but the FTSE 100 is seen increasing 0.24 percent.

Australian shares slipped 0.05 percent while Japan’s Nikkei was at 0.6 percent lower for its third week in a row of decline.

China shares fluctuated but were up firmly in early afternoon trade after the statements of government support for the market. The Shanghai index, which in the morning slid to its weakest level in four years, switched around to gain 2.3 percent. The blue-chip index swelled 2.7 percent.

The rebound in China came after the weakness on Wall Street on Thursday, which had earlier set the tone for many Asian markets. The Dow Jones Industrial Average slipped 1.27 percent, while the S&P 500 dropped 1.44 percent and the NASDAQ Composite shed 2.06 percent.

Meanwhile, investors in China shrugged off data that shows that China’s economy expanded 6.5 percent in the third quarter, which was its weakest pace since 2009 and below expectations, as a campaign to tackle debt risks and the trade war with the United States weighed on the economy.

“Weakness is largely coming from the secondary industry – most notably manufacturing,” said Betty Wang, who is the senior China economist at ANZ. “We may review our Q4 forecasts. Property investment continues to hold up which may provide some support.”

Shares in China had initially sputtered at the open of the trade, the steadied as investors digested statements from senior regulators pledging support for private firms and companies that are facing liquidity problems.

China’s banking and insurance regulator also said on Friday that it may allow bank wealth management subsidiaries to invest directly in stocks.

Kota Hirayama, who is the senior emerging markets economist at MSBC Nikko Securities in Tokyo, said that the downward pressure on China growth in part reflected the impact of Beijing’s long-running deleveraging campaign.

“The government has been aware of the negative impact from deleveraging and has swung towards easing around June, but the positive impact is yet to be felt,” he said. “There should be enough funding and if the funds trickle down to public works, we could expect to see positive impact in the next quarter.”

However, analysts cautioned that China’s economy would continue to face difficulties.

“Looking ahead, economic outlook is not optimistic with exports facing further headwinds as US tariffs kick in and demand from emerging countries ebbs,” said Nie Wen, who is an analyst at Hwabao Trust in Shanghai.

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