Asian Market Snapshot: Most Markets Gain as EU Stress Test Results Ease Concerns

On July 23, 2010, the Committee of European Bank Supervisors (CEBS) announced the results of stress tests of 91 banks, covering at least 50% of each domestic market and 65% of the overall EU banking sector. The results were in accordance with analysts’ expectations that five to 10 banks, none of them large, would fail the test: five Spanish cajas, Germany’s Hypo Real Estate (HRE) and Greece’s ATEbank didn’t meet criteria. The recapitalization needs amount to €3.5 billion (US$4.5 billion). The tests did not model a sovereign default as that has been deemed unlikely, given the national fiscal backstops for banks and the European Financial Stability Facility (EFSF) in place for sovereigns. (See RGE Critical Issue: “EU Stress Test Results: Challenges Ahead Despite Low Fail Ratio; Chronicle of a Stress Test Foretold“).

Both the MSCI Asia Pacific Index and MSCI Asia Apex 50 gained on Monday, rising 1.6% and 0.5% respectively.

The Japanese NIKKEI 225 rose 72.70 points or 0.8% to close at 9503.66. Japanese exports continue to increase, jumping 27.7% y/y in June. Although exports are gaining strength, there is concern that an appreciating yen will limit exporters’ profits in the future.

The Hang Seng gained 0.12% on Monday.

In China, the Shanghai Composite climbed 0.6% to close at 2588.68. Similar to Europe and the U.S., China will analyze its financial institutions, with stress tests focusing on how banks and trust firms would be affected by a downturn in the real estate market. There has been a heavy increase in the volume of loans in China as banks and trust firms have taken advantage of a rule allowing loans to be converted into investment products. The new investment products are then sold to investors, thereby allowing financial institutions to get loans off their balance sheets.

The Indian SENSEX 30 fell 0.6% or 110.93 points to 18020.05. Prior to Monday’s slide, the index had gained for three consecutive trading sessions. The Indian central bank plans to announce benchmark interest rates on Tuesday. According to a Bloomberg report, India’s central bank has stated that monetary policy tools will be needed to combat inflation. In addition, Moody’s Investors Service raised India’s credit rating one notch to Ba1.

Both Australia’s S&P/ASX 200 and South Korea’s KRX 100 jumped 0.6%.

On currencies, the AUD was trading at 1.116, up 0.06% against the USD while the JPY was quoted at 86.950, up 0.18% against the USD. While the RMB and IDR stayed flat, the INR lost 0.03% against the USD.

The yields on 10-year sovereign bonds fell in Japan, India and Indonesia. Price decreases led to increased yields on 10-year sovereign bonds in China, Australia, New Zealand and Hong Kong.

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