Asia Pacific Market: shares begin 2013 in rally-mode after US strike fiscal cliff deal

Asia Pacific stocks finished first business day of 2013 solidly higher on Wednesday, January 02, 2013, as investors snapped up growth-sensitive assets following news the U.S. House of Representatives voted fin favor of a Senate's approved bill on the fiscal cliff to prevent the world's largest economy from falling into a recession. Risk sentiments also underpinned by China's official survey showed Chinese manufacturing expanded steadily last month.

The US House of Representatives has passed a Senate-backed deal late on Tuesday by 257 votes to 167 to stave off a fiscal cliff of drastic taxation and spending measures. The bill was passed in the Senate in the early hours of Tuesday by 89 votes to eight after lengthy talks between Vice-President Joe Biden and Senate Republicans.

 

The deal will let tax hikes to expire for those earning less than $400,000 ($450,000 for families). This will lead to a tax rate of 39.6% for those earning more than the cutoff from 35% before the expiry of tax cuts. Further Clinton era deduction caps have been extended and estate tax and taxes on dividends and capital gains have been increased. Overall the bill would increase tax revenues by around $600 billion over 10 years, but allows extension of jobless benefits and Medicare reimbursements by one year. Average households will be mainly impacted by the social security tax cut which has been allowed to lapse. The main debate on spending cuts is likely to happen when the debt ceiling comes up for an increase in February. The compromise has helped improve sentiment in the financial markets significantly.

The rally also followed official data Tuesday showing that manufacturing activity in China expanded at a mild pace for the third month in a row in December, a survey of businesses showed, adding to hopes of a rebound in the world's second-largest economy but fighting headwinds from weak conditions around the world. The official manufacturing Purchasing Managers' Index was unchanged from November's 50.6, the China Federation of Logistics and Purchasing, which issues the data along with the National Bureau of Statistics, said Tuesday. A PMI reading above 50 indicates an expansion in manufacturing activity while a reading below 50 indicates contraction.

Meanwhile, HSBC data showed PMI for South Korea and Taiwan also climbed back above 50 in December. Korean PMI rose to 50.1 from 48.2 in November, while the index for Taiwan shot up to 50.6 from 47.4 in November. Singapore's official data showed their economy grew by an annualized seasonal adjusted 1.8% in the December quarter from the previous quarter.

In the Asia Pacific region, Hong Kong's Hang Seng Index rallied 2.9%, while Australia's ASX/200 Index settled 1.2% higher. South Korea's Kospi jumped 1.7% and Taiwan's Taiex rose 1%. Meanwhile key benchmark indexes in Indonesia, Taiwan and Singapore were up between 0.7% and 1.1%. Japan, New Zealand, and Mainland Chinese markets were closed for a holiday.

Australian sharemarket has kicked off the New Year with gains, with the broader All Ordinaries index rose 58.3 points, or 1.2%, to 4722.9, its highest level since June 2010, as a last-minute deal ended the US fiscal cliff crisis that threatened a recession and roiled world financial markets.

Among the major Australian sectors, materials were up 2.3%, energy stocks gained 1.2% and financials rose 0.8%. Mining giants Rio Tinto and BHP Billiton rose 2.4% and 2% to hit their highest levels since February, while Newcrest Mining and Fortescue Metals Group surged 3.6% and 5.8% respectively. Gindalbie Metals soared 10% to 27.5 cents after it shipped the first shipment of magnetite concentrate to China from the Karara iron ore project.

The Australian manufacturing activity declined for the tenth successive month in December. The Australian Industry Group performance of manufacturing index was unchanged at 44.3 in December, but stayed below 50, which indicates a contraction in activity.

South Korea's shares surged on sustained buying institutional investors and retailers following and some encouraging PMI manufacturing data and the U.S. lawmakers agreeing on a deal to avert a series of tax hikes and automatic spending cuts. The benchmark Kospi Average surged 1.7% to a nearly nine-month high. Market heavyweight Samsung Electronics rallied 3.6% to a record high, while Steel maker Posco added 3.3%.

South Korea's manufacturing sector expanded in December for the first time in seven months, although operating conditions remained little changed since the previous month, a survey by Markit Economics showed. The purchasing managers' index rose to 50.1 in the month from 48.2 in November, marking the highest reading since May. New order volumes increased after six months of continuous decline, while new export orders fell for the seventh successive month.

Hong Kong's market climbed to the highest level since June 2011, as investors snapped up growth-sensitive assets following news of the U.S. fiscal cliff deal. The rally also followed official data Tuesday showing that China's manufacturing Purchasing Managers' Index held steady at 50.6 in December, above the 50.0-point mark that indicates an expansion in activity. The Hang Seng Index ended up 655 points to 23,311. The H-share index also surged 461 points to 11,897.

Hang Seng listed blue chips all ended sharp higher , led by Chinese insurers on news that the CIRC allows insurers to start fund businesses. NCI surged 13% to HK$33.15. CPIC jumped 7% to HK$30.7. China Life gained 7% to HK$27. PICC shot up 6% to HK$11.52. Ping An added 5% to HK$68.25. Hong Kong's blue-chip exporters also contributed to gains, with clothing retailer Esprit Holdings up 3.5% and Li & Fung adding on 6.3%. The China banking sector provided further support to the HK index, with index heavyweight HSBC tacked on 2%, China Construction Bank 2.9%, Industrial & Commercial Bank of China 3.1%, and Bank of China 3.2%.

India's shares closed today trading notably higher, led by gains in capital goods, oil & gas, metals and banks, on sustained buying by foreign investors after the US House of Representatives approved the fiscal cliff bill. The 30-share index provisionally finished at 19,705.19, up 124.38 points or 0.64%.

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