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Asian markets fall as China re-opening spurs inflation fears

HONG KONG (AFP) – Asian markets were mostly lower yesterday following declines on Wall Street as China’s move to re-open after abandoning its zero-COVID policy revived inflation fears.

China has abruptly reversed tight pandemic restrictions that kept the world’s second-largest economy isolated for the past three years.

On Monday, Beijing announced it was ending quarantine measures for overseas arrivals from January 8, the latest move to loosen its zero-COVID regime, after it dropped mandatory testing and lockdowns earlier this month.

China’s scrapping of pandemic restrictions has spurred hopes for its economic revival but also raised fears it will add to inflationary pressure.

Moving to reopen even as the Asian giant battles a massive spike in COVID cases has caused jitters, with the United States (US) and several other countries saying they may restrict travel from China and introduce mandatory PCR tests for arrivals.

“While a full China reopening could provide a much-needed and timely boost to the global economy, it may come with unwelcome ambiguous strings attached,” said Stephen Innes of SPI Asset Management.

“The good news is that inflation subsides as China reprises its role as a supplier of low-cost goods globally and supply chain bottlenecks ease,” Innes said.

A currency trader talks on the phone near the screens showing the Korea Composite Stock Price Index. PHOTO: AP

“Still, the bad news is as growth accelerates through Q1, China’s insatiable demand for raw materials and all things energy will push up prices of those commodities, much to the consternation of the Fed and ECB. Indeed, re-opening is rekindling some inflationary spirits.”

Fresh data last week indicated a slowing of US inflation, but the news was not definitive and eyes will be on how the Federal Reserve moves to balance inflationary concerns alongside the possibility of a recession caused by increased borrowing costs.

“We may get a pivot later on next year from the Federal Reserve where they actually start cutting rates, but that’s going to happen when the situation is going to become much more dire than it is now,” chief market strategist for Miller Tabak Matt Maley said on Bloomberg TV.

“If we just have this slow grind lower, the Fed’s going to keep interest rates at high levels even if they stop raising rates in any kind of way.”

Asian markets mostly headed south, with Tokyo giving up 0.4 per cent, Seoul sliding more than 2.2 per cent and Shanghai down 0.3 per cent. Sydney, Kuala Lumpur and Jakarta also retreated while Wellington and Bangkok were among the few gainers.

Hong Kong jumped 1.4 per cent as investors digested the COVID news from Beijing on the first trading day after the holiday break, with China-related stocks and technology issues seeing big gains.

Oil prices slipped in Asian trade after China’s moves to reopen had given them a boost on hopes for renewed demand from the world’s biggest importer of crude.

Russia’s move to ban exports to countries complying with a price cap on its crude had also helped drive prices higher.

US benchmark West Texas Intermediate was down 0.3 per cent while international benchmark Brent slipped 0.5 per cent to just shy of USD84 a barrel.

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