Asian shares a regaining some momentum after a bullish day on Wall Street helped ease fears over Chinese credit contraction. An unexpected rise in German business sentiment provided further reason for optimism over the Eurozone recovery.
The Nikkei has jumped 1.4 per cent while the Hong Kong Hang Seng Index is up a more modest 0.3 per cent. South Korea's Kospi is also making gains, rising 0.8 per cent so far.
However, as Asian markets enjoy gains this morning, London-based consultancy Capital Economics warns that conditions for Japanese companies are likely to worsen while China's renminbi will continue to experience volatility.
The Shoko Chukin survey of business conditions showed a fall in the headline index of business conditions to 50.6 in February, after reaching a multi-year high of 51.3 in January.
Capital Economics commented:
Companies are forecasting a rebound to 53.3 in March, which would be the highest reading since the 1980s, but even if this happened sentiment will surely worsen after the consumption tax hike. What's more, firms' expectation of an improvement in business conditions in the coming month looks inconsistent with their forecast for sales.
Turning to China, Capital Economics concludes that that recent fall in the renminbi should be seen as indicative of a battle between policymakers who believe that China’s currency is close to its fair value and market participants who don’t.
While the renminbi is expected to appreciate over the medium term there is still scope for volatility along the way.