Asian Markets Weekly Roundup: Stocks Gain Despite Economic Concerns

Asian markets advanced this week as the Japanese government nominated a pro-stimulus central bank chief despite the split Italian election results that triggered volatile sentiments.

Japan's benchmark Nikkei index climbed 1.9 percent in the week while South Korea's KOSPI added 0.4 percent. Australia's S&P/ASX 200 rose 1.4 percent.

China's Shanghai Composite Index gained 2 percent while Hong Kong's Hang Seng was up 0.4 percent.

Upbeat sentiments prevailed in Japanese markets as the government announced Asian Development Bank (ADB) President Haruhiko Kuroda as its candidate for the post of Bank of Japan governor. This was largely expected as Kuroda's support for monetary easing programmes and his international network of contacts were in line with the Prime Minister Shinzo Abe's requirements.

A final decision will be taken after the upper and lower houses of the Japanese parliament vote on the matter, which is expected to take place this month. Analysts suggest that as BoJ chief, Kuroda will be looking to boost the asset purchase scheme to reach the inflation targets.

Hopes of such stimulus measures have weighed the yen lower against the dollar in recent months. But this week the yen made a comeback after a tense Italian election threw up fresh eurozone concerns.

Italy went to the polls this week, at a time the country remains mired in one of the worst financial crises in its history. Before the elections, analysts had suggested that the centre-left leader Pier Luigi Bersani would win a majority and look to form a coalition with the technocrat Mario Monti. But although Bersani managed to hold a slim majority in the lower house, the upper house or the Senate results remained divided with no majority.

This gave rise to speculations on the next move on the political front. The potential instability that the results indicated led to concerns on the sustainability of Italy's reform measures which are crucial for the eurozone's recovery efforts.

However, concerns eased after Italy's bond sales that took place after announcement of the results saw solid demand.

US political and economic developments too remained a major point of focus this week. At a congressional testimony, Federal Reserve Chairman Ben Bernanke defended the central bank's current stimulus plan. This eased market concerns, which had spiked after recent policy meet minutes showed that the Fed's committee members remained divided over the quantitative easing programme.

But although this appeased investors, concerns on the world's largest economy scaled towards the weekend after Washington failed to reach a consensus on the massive, across the board spending cuts.

Chinese economic optimism took a hit this week after an official and HSBC survey showed that the country's manufacturing sector expanded at a slower pace in February. Although the data was expected to be distorted by the Lunar New Year holidays, it gave rise to suggestions that China should not look to tighten its monetary policy in the short term.

The Week Ahead

US employment data for the month of February is set for release in the coming week. Analysts suggest that the unemployment rate would have held at 7.9 percent during the month.

In Europe, the Italian political developments will continue to be in focus. Markets will be keeping a close watch for any moves that the parties and coalitions make to form a government.

The Euroepean Central Bank (ECB)'s policy meet is set to take place towards the second half of the next week. President Mario Draghi is widely expected to strike a softer tone and perhaps indicate further interest rate changes for the future.

China's 10<sup>th National People's Congress begins this week, which is expected to continue for about 10 -14 days. The major focus will be the premier's "work report" presented on the first day, which may give some indications on the new leadership's reform plans. The new prime minister and heads of central government departments will only be known later, towards the meeting's end.

Australia will report its final quarter GDP figures in the coming week, which are expected to show a slower growth rate. Japan is also set to release its revised fourth-quarter GDP, which could indicate that the country managed to post a modest recovery.