By Don Miller
Associate Editor
Money Morning
Asian shares hit new highs across the board on Friday, highlighted and spearheaded by China markets' ascension to their highest levels in almost eight months.
The Asian markets reacted sharply to a surge in U.S shares after Wells Fargo & Co. (WFC) said it expected to post a record quarterly profit of $3 billion, topping analysts' expectations.
"The market was helped by Wells Fargo's stronger than expected first quarter results estimate, fueling hopes of stabilization in U.S. financial markets," Won Jong-hyuck, a market analyst at SK Securities in Seoul, told Reuters.
The U.S. financial sector was sharply higher, with the S&P financial index soaring 15.5%.
Global investors have been keenly anticipating results from U.S. financials, which crank into high gear this week with Goldman Sachs Group Inc. (GS), JP Morgan Chase & Co. (JPM) and Citigroup Inc. (C) set to report.
The news rocketed a parade of Asian stock markets to multi-month highs: Korea's Composite Stock Price Index (KOSPI) hit a six-month high, Taiwan's main TAIEX index gained 2% to 5,781.96, and in Japan, the Nikkei 225 hit a three-month closing high for the second day in a row.
However, Chinese stocks were at the forefront, as they soared on speculation that the central bank will lower interest rates for the first time this year. The Shanghai Composite Index rose 2.7% to 2,444.23 - the highest close since Aug. 20 - to cap off a four-week winning streak.
"There is speculation about cuts in interest rates and reserve ratios, which will boost liquidity," Larry Wan, deputy chief investment officer at KBC-Goldstate Fund Management Co. in Shanghai, told Bloomberg News. "The market also expects economic figures for March to beat forecasts, which will lead to a turnaround in earnings."
The Shanghai Composite Index is now trading at 20 times earnings, up 34% on the year, the highest among the so-called BRIC nations of Brazil, Russia, India and China, according to data compiled by Bloomberg.
Chinese markets have also surged on optimism that the government's $585 billion (4 trillion yuan) stimulus package and record amounts of new lending will ignite a recovery in the world's third-largest economy amid a withering global recession. The government cut interest rates five times from September to December.
China's exports dropped for the fifth month in a row in March, fueling the rate cut speculation and adding urgency to government programs designed to stimulate domestic demand and revive growth. Exports tumbled 17.1% to $90.29 billion from March 2008, the state-run Xinhua news agency reported.
China's stimulus program is heavily weighted toward infrastructure development, and commodity stocks skyrocketed as investors piled into the sector. Jiangxi Copper Co. Ltd. (ADR: JIXAY), the country's biggest copper producer, jumped the limit of 10%. Tongling Nonferrous Metals Group Co., the No. 2 producer, soared 8.6%, and PetroChina Co. Ltd. (ADR: PTR), the nation's biggest oil company, tacked on 1.7%.
"I still favor commodity stocks because metals prices have already bottomed out," Chen Wenzhao, a strategist at China Merchants Securities Co. in Shanghai told Bloomberg.
But the good news wasn't limited to commodities as the broad-based rally also boosted shares of companies in the real estate, renewable energy and banking sectors.
"Money is still moving into equities when investors see good earnings and good news," Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, told Bloomberg.
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