Asia Open: Profit taking might be in order

It might be wise to take some chips off the table, particularly in Asia.

Asian stock markets are kicking off the week with momentum tailwinds, particularly in Japan and China, driven by enthusiastic investors. However, a period of profit-taking might be in order as investors come up for air following last week's buying frenzy, fueled by enthusiasm for global technology and artificial intelligence (A.I.) sectors.

China's CSI 300 index, comprising blue-chip shares, recorded a modest increase on Friday, extending its winning streak to nine consecutive days, marking its most impressive run since January 2018. While there's a possibility that the market lows have been reached, it's not necessarily due to attractive valuations or improved fundamentals. For those who maintain a bullish outlook, it's likely based on the belief that the Chinese government is committed to supporting the stock market and preventing further declines. Indeed, relying upon a “policy put” as a guiding principle is a strategy tested and proven over time.

Currently, the U.S. market is trading " Goldilocks" with a Fed put as assuredly that if employment rolls over, the Fed will cut, making it more challenging to short the U.S. index markets with big guns ablaze.

The significant gains witnessed last week in both Mainland and Hong Kong equities are notable, especially considering Hong Kong-listed Chinese shares, which have surged nearly 16% from their recent lows. The H-share benchmark could officially enter bull market territory with a few more positive sessions.

According to Bloomberg, this month, the Hang Seng China Enterprises Index (HSCEI) has emerged as the top-performing primary gauge globally. It has recorded three consecutive weeks of robust gains, underlining its strength and resilience in the current market environment.

But, the recent 25 basis points cut to the five-year Loan Prime Rate (LPR) by banks may not have a significant impact, especially considering that mortgage rates are already at low levels. Additionally, the pre-announced reduction in the Required Reserve Ratio (RRR) by Pan Gongsheng represents a focus on stimulating credit supply rather than addressing the underlying issue of weak demand in the economy.

The weak yen makes Japanese assets appealing to foreign investors, with the dollar comfortably trading above 150.00 yen. However, the market may be due for a correction on a March BoJ rate hike or even flat-out intervention. And when considering the historically high levels of bearish positioning in the yen among hedge funds, as indicated by the latest U.S. futures market figures. The foreign exchange market could soon be due for a significant reversion or a downward( USDJPY) adjustment.