Risk is back in the game

Market sentiment continues to improve on Wednesday, as investors’ appetite for risk appeared to have grown in the overnight session. 

Singapore's Skyline
Source: Bloomberg

European equities advanced over 1%, with the risk-on mood extending to the US markets. After returning from a long weekend, US stocks saw a strong rally, accompanied by sales in US treasuries.

Of course, the rebound in China shares certainly has a hand in the pickup in risk sentiment. If we recall, the Shanghai Composite jumped almost 3%, which saw the CSI 300 chalking up a 2.6% gain. State support may also be at play here, given that the China A50 rebounded 1.9% yesterday after tumbling 4.7% on Monday. It seemed there is now some clarity in the risk markets, after a nerve-wrecking start to the week.

In mainland China, there is some focus on the government’s plans to ramp up fiscal policy to support the economy. The Ministry of Finance (MOF) announced a plethora of initiatives on its website, including speeding up some major construction projects, removing fees and reducing taxes for companies.

Keeping in mind the aim to shift China to a consumption-based economy, the MOF is studying reform plans for resource tax and personal income tax, while seeking to promote consumption tax reforms. This is very positive for overall market sentiments.

Earlier on Monday, MSCI CEO Henry Fernandez said that the inclusion of A shares into its indices may happen sooner than expected. He believed the recent violent market fluctuations will not affect the decision to include Chinese shares in its MSCI indices.

However, the three issues (quota allocation process for QFII and RQFII, capital mobility restrictions, and beneficial ownership issues) highlighted by the MSCI during in June review have seen no notable changes in recent months. It is estimated that the inclusion of A shares would bring USD 400 billion from asset managers, pension funds and insurers into Chinese equity markets over time.

Japan and Australia are racking up some strong gains in early Asia, with the Nikkei 225 testing the 18,000 level while the ASX 200 is eyeing the 5200 mark. In Japan, Prime Minister Abe pledged to lower corporate tax in FY2016 by at least 3.3 percentage points, while reiterating that strengthening corporate governance remains at the top of the agenda. Clearly, this bolstered the outlook for Japanese companies. I am expecting markets across Asia to go into risk-on mode today. The Straits Times Index (STI) is likely to rally beyond 2900 today.

In the currency markets, the AUD extended gains into a third session, moving stronger above 0.70, on better sentiments. The Aussie was accompanied by NZD, which moved higher towards 0.64. Traders are paring their holdings of the Japanese yen as safe-haven demand receded. The USD/JPY advanced further in the 120 handle.

*For more timely quips, you may wish to follow me on twitter at https://twitter.com/BernardAw_IG

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.