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20 Aug 2008

Asia Stocks Edge Higher as China Approaches Policy Change

In a Reuters release today, it is reported that Asian stock markets edged higher, rebounding from a two-year low.

Chinese shares surged on hopes for policies from Beijing to jumpstart growth, though many analysts said it was a long shot. Although world stock markets slid to the lowest since September 2006 on Tuesday, most Asian indexes turned higher as cheap valuations proved irresistible, especially with markets rife with chatter about fiscal stimulus in China.

"Bargain hunters have returned to the market on talks that a rescue package is on the way," said Francis Lun, general manager from Fulbright Securities in Hong Kong. "We are all waiting for a miracle," Lun added.

Despite the sudden turnaround in Asian stocks, apprehension about the earnings outlook was rife, according to Reuters, especially after the Bank of Japan on Tuesday described the world's second-largest economy as "sluggish" -- a term it has not used since the Asian financial crisis a decade ago.

Stephen Green, head of China research with Standard Chartered Bank in Beijing, said that given economic growth is still expected to stay above 8 percent this year and next, it is too early for the government to squeeze its budget to boost growth.

Rather, Beijing should consider relaxing loan quotas to stimulate bank lending to support growth. "It is too early for a fiscal stimulus package, and we should be responsible about calling for one," he said in a research note. "There is still room for monetary policy before we try fiscal policy."

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