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Asia shares recoup recent losses

broadest index

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%, Nikkei rebounded 1.8% from its lowest since January, Chinese blue chips bounced 2%, and Australian stocks hit a record

Shares in Asia recouped some of their recent losses on Monday as Chinese markets drew retail bargain hunters, while Wall Street futures were supported by stellar U.S. earnings and progress on an infrastructure bill.

There was prospect of more fiscal stimulus as U.S. senators worked to finalise a $1 trillion infrastructure plan that could pass this week.

That helped S&P 500 futures and Nasdaq futures as both gained 0.5%. EUROSTOXX 50 futures also advanced 0.5%, while FTSE futures added 0.4%.

Australian stocks hit a record on the back of Square Inc’s $29 billion bid for buy now, pay later (BNPL) pioneer Afterpay Ltd.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.8%, having hit its low for the year so far last week.

Japan’s Nikkei rebounded 1.8% from its lowest since January.

Even Chinese blue chips bounced 2%, having dropped 5.5% last week, though China’s crackdown on the tech and education sectors hammering stocks still reverberated.

The 10-15 year period where foreign investors were allowed to participate in the walled garden of Chinese high growth stocks was an aberration, said BofA economist Ajay Kapur. A shift in China’s regulatory regime was underway that held implications well beyond the tech sector.

Regulatory tightening in the world’s second largest economy intended to reduce inequality and make housing and goods more affordable is deflationary, something that the many bond bears need to consider, he said.

China’s economic problems were highlighted by surveys showing factory activity slowing sharply in July amid rising costs and extreme weather.

In contrast, Europe’s economic recovery outpaced all expectations last quarter, while U.S consumers spent with abandon in June as pandemic restrictions eased.

Surging company profits in the U.S. and lower bond yields are providing support, and in any case the rising trend in shares is likely to remain in place into next year as rising vaccination rates allow economic recovery to continue, said Shane Oliver, chief investment strategist at AMP Capital.

Nearly 89% of the nearly 300 recent U.S. earnings reports have beaten analysts’ estimates. Earnings are now expected to have jumped 89.8% in the second quarter, compared with forecasts of 65.4% at the start of July.

Equity valuations have also been supported by a steady decline in bond yields, with yields on U.S. 10-year notes dropping for five consecutive weeks to reach 1.22%.

That drop along with strong European Union (EU) economic data out on Friday lifted the euro to $1.1872, and away from its July low of $1.1750.

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