A number of fundamentals from Asian economies drive the revival of equity markets

Last week witnessed a number of major fundamentals from Asian economies pushing equity markets up after fluctuations witnessed in the beginning of the week. Easing inflation in China and declining unemployment in Australia were enough to increase investors' appetite for risk, helping Asian indices to rise, but still fears regarding the situation in Greece ignited concern in financial markets that makes us expect sharp moves next week.

There is no doubt that investors are still worried about the strength of the global recovery, despite that the EU Economic Summit in Brussels carried good news concerning the deficit crisis in Greece. Finance Ministers agreed to aid Greece to narrow its deficit that rose to 12.7% of last year’s GDP, while the union's limit is 3.0%.

Inflation in China eased to 1.5% in January compared with a previous 1.9%, and it came less than the forecasted 2.1%. Producer prices rose 4.3% in January from a year earlier, compared with 1.7% in the previous month, while the purchasing price index came at 5.5% from 3.0%.

However, inflationary pressures eased after the People's Bank of China decided last month to force banks to raise their deposits by 0.5%, which is helping to control lending growth to avoid an asset bubble formation, which threatens growth in the world's fastest growing economy. On the other hand, the Chinese Banking Regulator Commission said China will control credit growth to reach 7.5 trillion yuan ($1.1 trillion) during this year.

Monetary policy makers are still monitoring credit markets since the Chinese GDP grew 8.7% in 2009 more than the government's target of 8.00%, raising concerns about a bubble in the properties and stocks market. Thus, the central bank may raise interest rates and loosen controls on the yuan in the upcoming period in order to keep inflation rate under control.

Moreover, a report showed Chinese exports climbed 21% in January from a year earlier recording $109 billion, while imports jumped 85.5% to record $95.43 billion. China's trade balance surplus narrowed to $14.17 billion in January compared with a previous surplus of $18.43 billion, and it was anticipated to show a surplus of $20.00 billion.

Nevertheless, unemployment in Australia unexpectedly declined for the third straight month to 5.3% in January from 5.5% in December, while it was expected to incline to 5.6%. Employment change rose for the fifth straight month and it came at 52.7 thousand in January compared with a prior revised 37.5 thousand from 35.2 thousand, while forecasts referred to 15.0 thousand.

Such improvements in the labor market are proving that the business sector is much stronger and demand for workers is increasing alongside better sales and advancing exports. Demand from China for resources is inclining especially with the nation's manufacturing sector rebounding, while commodities prices are recovering from last year's low records adding to exports value.

Better conditions in the labor market are adding pressures on the Reserve Bank to raise interest rates next month, after they were kept at 3.75% in February to give more chance for earlier changes to show its effect on markets. The RBA raised borrowing costs by 25 basis points in December following two similar decisions in October and November to become the first central bank in the world to raise its benchmark three times in 2009.

As for Japan, the current account surplus narrowed to 900.8 billion in December compared with a previous surplus of 1103.0 billion yen in November, while the adjusted current account surplus came at 1100.5 billion yen following a surplus of 1304.8 billion yen.

The nation's trade balance surplus widened to 631.2 billion yen from 490.6 billion yen, and it came less than market projections of 669.4 billion yen. The report showed Japanese exports gained on the year for the first time 15 months that makes us believe the world's second largest economy will gain back the support of the exports sector after a long absence. Overseas shipments rose 11.7% in December from a year earlier giving hope for Japanese manufacturers after a prolonged drop.

Yet, The Bank of Korea decided to keep interest rates steady at the low record of 2.00% for the 12th straight month, inline with market expectations. Policy makers aim at giving the economy more time to benefit from low borrowing costs to support recovery in Asia's fourth largest economy.

Mixed fundamentals seen recently in South Korea besides the government's pressures, forced Governor Lee to keep rates steady. The Korean Finance Minister said "it is premature for South Korea to pursue an aggressive exit strategy such as an interest rate increase", which makes us expect interest rates not to be raised in the first half of this year.

The MSCI Asia Pacific Index ended Friday’s trading by climbing 0.6% to 116.70. As for Nikkei 225 it ended Friday’s trading by rising 1.29% to close at 10,092.20 points. Meanwhile the S&P/ASX 200 closed on Friday at 4562.10 after rising 0.17%. Hang Seng ended Friday’s trading by falling 0.11% to close at 20268.69 points.

Dear reader, our tour in Asian economies this came to an end, and we are waiting for more fundamentals to be released this week that may help us figure out where the Asian region is heading, towards recovery or still held by the recession?