Asian Stocks Post Gains Amid China’s Ongoing Deflation Woes

Asian stocks were mainly in the green on Thursday, following a surge in Wall Street, but Chinese markets struggled to maintain gains after the country’s consumer price index (CPI) added to the potential for deflationary pressures and continued deceleration in the world’s second-largest economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.03% while the Nikkei 225 was up 1.87%.

Australia’s S&P/ASX 200 index rose 0.38%, and South Korea’s KOSPI index added 0.44%, although the increases were weighed by a 1.01% decline in Hong Kong’s Hang Seng index.

Shares of Chinese e-commerce giant Alibaba Group Holding Ltd. fell 6.81% as its revenue of CN¥260.35 billion ($36.6 billion) for the fiscal third quarter ended below forecasts of CN¥262.07 billion.

The blue-chip CSI 300 index soared 0.37% in a volatile session following three consecutive sessions of gains as Beijing employed a suite of measures to stabilize the country’s equity markets. The Shanghai Composite index advanced 1.15%.

Deflation Woes Continue to Follow China’s Economy

Data from the National Bureau of Statistics (NBS) showed on Thursday that China’s CPI dropped further 0.8% year-over-year (YoY) in January from a 0.3% YoY slide in December, marking its largest stumble since 2009 and missing expectations for a 0.5% slump.

CPI was down 0.3% month-over-month.

The producer price index (PPI) also slipped for the 16th month in January at 2.5% YoY compared to the 2.7% YoY decline posted in the previous month. The latest reading does not bode well for sentiment.

With the CPI presenting another fall, China may need to take immediate and aggressive action to prevent consumers from developing a deflationary prospect. While monetary policy has been more accommodative, the steps intended for fiscal policy are gradual.

On Wednesday, Beijing replaced Yi Huiman with ex-Shanghai Stock Exchange (SSE) chairman Wu Qing as chairman and Communist Party chief of China Securities Regulatory Commission (CSRC) in its latest attempt to improve confidence in financial markets before the Lunar New Year.

The move, however, was met with little enthusiasm from investors.

Global market strategist Kerry Craig believed the country’s officials are trying to have some control before the week-long Lunar New Year holiday.

Still, Craig stated that China’s markets would only improve further if the property crisis were mostly resolved and prices started increasing, easing the ‘wealth effect’ among consumers.

Many offshore investors have begun exploring markets beyond China or diversifying their holdings as well, according to Craig.