Chinese equities continue to march higher as several positive developments spurred another round of buying frenzy. News that the cross-border sale of mutual funds between mainland China and Hong Kong bolstered sentiments. The sale, which will begin on 1 July 2015, is expected to support the Chinese authorities’ ongoing effort to liberalise the A-share market. The initial quota is set at CNY 600 billion (USD 97 billion) and only general equity funds, bond funds, mixed funds, unlisted index funds and physical index-tracking exchange traded funds would be eligible under the scheme, according to regulators.
The CSI300 closed above 5000, the first time since 2008, and making a 3% gain. Likewise, the China A50 surged over 400 points or 3.1% to end above the key 14,500 level. It may be noted that the news benefitted blue-chips more than smaller-cap stocks, which saw the Shanghai Composite outpacing Shenzhen Composite. Chinese markets continue to look bullish, underpinned by expectation of more easing measures from both the monetary and fiscal fronts. However, with nothing noteworthy on the China’s data calendar this week, it remains to be seen if the extended rally will become over-extended. Only a pullback below the 50-day moving average at 13025 will dissipate current bullish momentum.
In Japan, the Nikkei 225 chocked up another fresh 15-year highs, closing above 20,400. Bullish sentiments have seen the Index closed up for the 11th session in the last 12 sessions, with the Index eyeing 20,500. A litany of data due this week could help Japanese bulls. Industrial production and consumer inflation readings will be closely monitored for clues on what the Bank of Japan may do next, and will be potentially market-moving.
Euro weakens further
Dollar resurgence remained dominant in the Asia session, keeping major currencies under pressure. The dollar index maintained above 96. Euro was hit lower at the beginning of the European trade, as thinner market liquidity means the single currency requires little volume to push it lower. EUR/USD dropped towards 1.0960 with traders targeting the 50-day moving average at 1.0954 as well as stops below 1.0950. The EUR/GBP cross fell to over two-month lows. Increasing risks of Greece default continue to be euro-negative after Interior Minister Nikos Voutsis said the debt-ridden country has no means to repay the IMF on 5 June if a bailout agreement is not reached. In the absence of data and market liquidity, declines in the euro may not sustained, at least for Monday.