Asia Stocks Rise, Shanghai Recovers

Most Asian markets rose Wednesday following a positive lead from the US and Europe, while Shanghai recovered from early selling fuelled by Moody’s decision to cut China’s credit rating on worries about its growing debt mountain.

The ratings agency said its downgrade on the world’s number two economy was prompted by the likelihood of a “material rise” in debt throughout the economy and as potential growth slows, AFP reported.

Beijing has tried to address a toxic brew of unregulated and risky lending, which is increasingly seen as a threat to global financial stability. But analysts are unsure about leaders’ willingness to push on with the reforms since huge borrowing has been a key driver of the growth on which the Communist Party relies for political legitimacy.

Shanghai fell 1% early on but reversed the losses to end up 0.1%, while the yuan also bounced back from initial losses against the dollar. Hong Kong rebounded to end 0.1% higher.

But elsewhere, investors tracked a Wall Street gain. Tokyo finished 0.7% higher while Sydney put on 0.2%, Singapore gained 0.3% and Seoul added 0.2%. Wellington and Taipei were each comfortably higher.

US stocks rose for the fourth straight session after Donald Trump’s administration unveiled a 2018 budget that includes swinging cuts to services over 10 years but also a huge rise in military spending.

There was little carry-over from Monday’s terror attack in Manchester that killed 22 people including children at a concert. Stephen Innes, senior trader at OANDA, said in a note “the initial market response is subdued on the surface, but concerns about future attacks remain elevated”.

On currency markets, the euro held up against the dollar as uncertainty about future US policy—linked to recent crises that have hit Trump—combined with upbeat eurozone data, including Tuesday’s economic growth and jobs creation. The figures also helped push Paris and Frankfurt higher.

Attention turns later in the day to the release of minutes from the Federal Reserve’s most recent policy meeting. Investors hope to get a handle on its plans for interest rate rises following a number of weak indicators lately.

Among the weak points is inflation, which Minneapolis Fed president Neel Kashkari described as going in the wrong direction. In early trade, London was flat while Frankfurt and Paris each shed 0.2%.