Problems at the damaged Fukushima Daiichi nuclear complex have continued to cause worry as Japan has struggled to contain radiation leaks. Last Sunday, workers were evacuated again after extremely high levels of radioactive substances were detected in the building, and the level of radioactivity in a pool of water that had accumulated inside one of the buildings reached 100,000 times the normal level found in the reactor core. Further setbacks followed, as plutonium was detected in samples of soil taken from around the nuclear plant and radioactive material detected in nearby seawater continued to rise. Concerns about the country’s earthquake hit supply chains and left shares under pressure, and not even a weaker yen could lend much support to some of Japan’s big manufacturing groups. Midweek the Tokyo market had a lift as exporters extended gains on the back of a weaker yen, and encouraging news emerged that many firms had restarted production after the natural disasters on March 11^th. But by the end of the week the market struggled to make headway amid the ongoing nuclear crisis, as Japan’s chief cabinet secretary said it would take years to fully stabilise the stricken atomic power station. The Japanese government is reported to be considering injecting public funds into the struggling Tepco utility, whose share price has fallen -79.10% since March 10^th, the day before the earthquake and tsunami hit. The yen has continued to slide, with traders betting it will suffer from poor interest rate differentials as the Bank of Japan keeps monetary policy looser for longer as the country recovers. Despite a week of largely negative news, the Nikkei gained +1.81% during the week, but left March plunging -8.18% and Q1’11 down -4.63%.

In China, markets were boosted at the beginning of the week by banks and coal miners posting higher than expected earnings, though gold miners and coal producers followed commodity prices lower midweek in response to a pullback in oil prices. On Thursday, China’s shares were hurt by renewed concerns about further monetary tightening from Beijing, as investors began to speculate on the possibility of another hike in interest rates over the weekend in an attempt to control inflation, on expectations that the March Consumer Price Index will be above 5% (CPI was up 4.9% in February). As part of its efforts to fight inflation, China has raised banks’ reserve requirement ratio nine times since the start of last year, and raised benchmark interest rates three times since October 2010. The end of the week saw China markets getting a lift from PMI data, as China’s official Purchasing Managers Index rose from 52.2 in February to 53.4 in March, and HSBC’s PMI rose slightly from 51.7 in February to 51.8 in March. This signalled a rebound in manufacturing activity and showed the sector’s output accelerating, suggesting Beijing’s monetary efforts to cool inflation were not damaging activity and that foreign demand remains firm. The Shanghai Composite ended the week -0.38% lower, whilst the Hang Seng advanced +2.78%. March saw both indices slightly higher as the Shanghai Composite and Hang Seng were up +0.79% and +0.81% respectively over the month, and the quarter saw them post gains of +4.27% and +2.14% respectively.

South Korea has seen foreign buying dominating the market, in the belief that South Korean manufacturers are well positioned to take market share from Japanese rivals grappling with disrupted production in the aftermath of the earthquake and tsunami. This led the KOSPI to close at a record high on Friday, advancing +3.26% over the week. The index gained +8.63% over March and +2.72% over Q1’11.

Elsewhere in the region, India had a strong week as the BSE Sensex gained +3.21%, advancing the index +9.10% over March and cutting Q1’11 losses to -5.19%. In Australia, the ASX 200 was boosted by resources which were led higher by commodity prices, advancing the index +2.51% over the week (March was relatively flat as it gained just 13 bps, whilst Q1’11 was +1.95% higher). The Jakarta Composite and Taiwan Weighted Index were also positive over the week, gaining +2.78% (+6.00% in March, -0.67% in Q1’11) and +1.10% (+0.97% in March, -3.22% in Q1’11) respectively.

Tokyo was closed for a public holiday on Monday, though the yen was still trading and stabilised above the Y80 to the dollar mark following G7 intervention last week, signalling an improved confidence in Japan’s prospects. Tuesday saw a surge in Japanese stocks following hopes that progress was being made in cooling the crippled nuclear reactors. However, midweek saw unease set in again as earthquakes of magnitude 6.0 and 5.8 hit Fukushima and raised fresh concerns about nuclear contamination. Smoke was seen rising from reactor No. 3, causing authorities to issue an evacuation order which halted engineers’ work on the plant for 12 hours. Many countries, including the US, stopped food imports around the Fukushima area following reports of contaminated food, and Tokyo authorities warned that young children should not drink tap water because of the high levels of iodine found, spooking the Tokyo market. Realisation that the Fukushima nuclear plant crisis is starting to have an impact beyond the energy-linked production dislocation that markets appeared to have discounted also contributed to the fall in the Nikkei on Wednesday, though market losses were limited by foreign buying as investors continued bargain hunting. Thursday saw workers allowed back into the evacuated nuclear plant, though investors remained worried about the situation. The Nikkei was flat, as the market struggled for traction amid concerns that the damage caused in Japan will exceed the 25 trillion yen that the government had previously estimated, which only covered the direct costs from the earthquake and tsunami disaster and not the subsequent problems at the nuclear reactor. The end of the week saw improved sentiment following news that some manufacturers had started to resume production and that progress was being made in containing radiation at the stricken nuclear power plant. This boosted buyers and saw the Nikkei advance, though investors remain wary of the fluid situation at the nuclear complex. The Nikkei finished the week +3.58% higher.

In China, financials were one of the main drivers behind market gains this week following robust bank earnings, and the energy sector was boosted by higher oil prices. Advances were held back by weak property plays as investors worried about tightening monetary policy crimping demand in the sector, though many believe the reserve ratio requirement increase last week to have been largely priced in. The Shanghai Composite and Hang Seng climbed +2.37% and +3.85% respectively during the week.

Elsewhere, India’s Sensex was the relative winner of the region as it gained +5.24% during the week, though the country still struggles to contain inflation which has been affected by rising crude oil prices. In South Korea, technology plays drew foreign buyers, and automakers jumped on expectations of greater market share as Japanese carmakers struggled with disruptions to production, leaving the Seoul Composite up +3.68% over the week. In Australia, resource stocks gained ground as hope emerges that Japan’s rebuilding efforts will boost demand for raw materials, leaving the ASX 200 up +2.51% over the week. The Singapore Straits Index, the Taiwan Weighted Index and the Jakarta Composite advanced +4.60%, +2.57% and +3.24% respectively during the week.

Tokyo stocks sank at the beginning of the week, as the Nikkei tumbled -6.18% on Monday (with overall stock exchange volumes hitting a record 4.88 billion shares) and plunged even further on Tuesday as it shed -10.55%, its third biggest fall in history. The Bank of Japan said it would provide $265 billion to support the financial system, the largest ever liquidity operation by Japan’s central bank. Some commentators suggested that the need for such large scale rebuilding might provide an economic boost;a few years ago a senior official at Japan’s Finance Ministry made the shocking statement that “what Japan’s economy needs is a really good earthquake”, and tragically his wish came true. Midweek Japanese stocks rallied in the belief that recent selling had been overdone, and Wednesday saw the Nikkei claw back some of its losses as it gained +5.68%. “Bargain-hunters” saw recent declines as a buying opportunity and moved back into riskier assets, despite news of another spike in radiation levels at the Fukushima plant and another magnitude 6.0 aftershock hitting Chiba prefecture. Investors also grew more confident that Japanese investors and institutions would sell foreign assets and bring money back to Japan for reconstruction efforts, sending the Japanese yen soaring to its highest level against the US dollar since World War II (Y76.25 to the dollar). However, fears of intervention from the Japanese authorities reversed this rise on Thursday, which was an extremely volatile session in Asian trading as investors struggled to understand the global implications of the recent disasters in Japan. Friday saw the Nikkei rally again as it gained +2.72% upon news that the G7 had agreed to deliver co-ordinated intervention to weaken the yen, which boosted Japanese exporters and reassured the broader market that governments are prepared to take firm action if necessary. Market sentiment was helped by reports that radiation levels around Fukushima were falling, and that the situation was slowly coming under control. The Nikkei lost -10.22% during the week, but bulls maintained that despite reduced production from Japan causing problems for global manufacturers, the underlying fundamentals continue to improve, and the Japanese economic dislocation will not cause that much harm to global growth prospects.

India shrugged off fears regarding the effects of the earthquake in Japan and turmoil in the Middle East by continuing its aggressive campaign of raising interest rates, following data released on Tuesday which showed alarmingly high headline inflation of 8.3% in February. The Reserve Bank of India responded by raising its policy rate by 25 basis points on Thursday, which took the repo rate to 6.75% (its highest since early 2008) and its reverse repo rate to 5.75%, though this was in line with expectations. The move was the eighth in 12 months, as India fights the highest inflation of any major Asian economy. India also suffered political concerns at the end of the week after a leaked US diplomatic cable suggested India’s ruling Congress party offered bribes to win a crucial vote in Parliament on the US-India nuclear deal in 2008. The BSE Sensex ended the week -1.62% lower.

China has also been seeking to control inflation as China’s central back lifted its reserve ratio requirements by 50 basis points on Friday (the third increase this year), meaning the nation’s biggest banks must set aside 20% of deposits as reserves. The decision indicates that containing price pressures is the key economic priority for Beijing right now, as economic data released earlier on Friday showed that house prices in most big Chinese cities rose in February, despite measures previously taken to control prices. At the beginning of the week, China was revealed to have become the world’s top manufacturing country by output, ending the US’s 110 year run as the largest goods producer. Estimates showed that China last year accounted for 19.8% of world manufacturing output, slightly ahead of the US with 19.4%. The Hang Seng and the Shanghai Composite ended the week down -4.08% and -0.89% respectively.

Elsewhere in the region, the Jakarta Composite ended the week -1.36% lower, the Taiwan Weighted Index lost -2.02%, the ASX 200 in Australiawas down -0.40%, and the Singapore Straits was -3.54% lower. The Seoul Composite was the relative winner, as it advanced 1.31% over the week on expectations of higher demand for products that were affected by production disruption at their Japanese rivals.

China was the exception to Asia’s poor start of the week, as solid gains on the back of supportive economic policies sent the Shanghai Composite to fresh 2011 closing highs on Monday. During the annual session of the National People’s Congress, Wen Jiabao announced that the economic growth target for 2011 will be maintained at 8%, and pledged that taming inflation will be the government’s top economic policy priority this year. Mid week saw energy groups continue to do well, and hopes that Beijing’s monetary policy might not be as restricted as once feared helped stocks to gain ground. Advances were reversed at the end of the week however, as data released on Thursday showed a surprise $7.3bn trade deficit in February, down from a $6.45bn surplus in January, and China’s first deficit since March last year. While slower export growth was expected due to the Chinese Lunar New Year holiday, the data contrasted sharply with predictions of a $3.9bn surplus. Imports rose 19.4% (32.6% expected) and exports rose at 2.4% (27.1% expected), raising concerns that demand for China’s products is slipping and possibly pointing to a dip in global consumption, though many economists deem the deficit to be temporary. Regional markets reacted negatively to the China data on worries that a slowdown in the Asian economic juggernaut could impact global growth. Additional data released on Friday showed that China’s February consumer price index rose 4.9%, unchanged from 4.9% in January, though slightly above expectations of a 4.8% rise. China’s producer price index, a measure of pipeline inflation pressures, rose 7.2% in February, up from 6.6% in January and higher than the 7% rise expected. This caused fresh worries about more tightening measures from Beijing, and at a news conference China’s central bank governor Zhou said that China will use interest rates to control inflation, whilst many believe the market should also prepare for a reserve ratio requirement hike within the next few weeks. Despite numerous setbacks, the Shanghai Composite and the Hang Seng outperformed many Asian markets, ending the week down -0.23% and -0.68% respectively.

Japan started the week badly, with high energy prices taking their toll on the market mood, leading shares lower. Losses were aggravated by domestic political turmoil, following revelations that the Foreign Minister had accepted illegal political donations from a foreign national, and his subsequent resignation. Shares were boosted mid week as merger and acquisition activity lifted the Nikkei, and investors shrugged off news that an earthquake of magnitude 7.2 had hit north-eastern Japan on Wednesday ,as reports suggested that there was little damage to the rural, quake-prepared region. However, on Friday, Japan was rocked by an earthquake of magnitude 8.9 hitting the north-east, one of the five biggest earthquakes in history, which caused a 10 meter tsunami and triggered tsunami warnings for 53 countries around the world. The scenes of fires and floods left investors risk averse, though the tremors occurred just prior to the close of the session, leaving traders little time to gauge the extent of the damage. The Nikkei sank -4.11% over the week.

Korea suffered lingering worries about inflation in the region during the week, and subsequently the KOSPI was weighed down by foreign investor sales. Inflation rose to 4.5% last month, causing the Bank of Korea to raise the benchmark interest rate by 25 basis points to 3%, the second increase this year and the fourth since July last year, though the increase was in line with expectations. The KOSPI ended the week down -2.45%.

Elsewhere in the region, the BSE Sensex ended the week -1.69% lower as India suffered political setbacks to their ruling government at the beginning of the week. The ASX 200 fell -4.51% over the week and the Taiwan stock exchange finished -2.47% lower. The Jakarta stock exchange was the relative winner of the region, finishing the week just 2 basis points lower.

The end of another difficult week leaves investors questioning the extent to which the earthquake in Japan will disrupt global economic activity, and continuing to worry about political turmoil in the Mid East. A day of protest (dubbed “Day of Rage”) was planned in Saudi Arabia on Friday, heightening concerns of an oil supply shock that could damage the global economy, though streets were reported to have remained calm as hundreds of police were deployed in the Saudi Capital.

After early losses in Asia shares on Monday, markets rebounded towards the end of the session as oil prices appeared to be loosening its grip on market’s risk appetite. In China, premier Wen Jiabao lowered the government’s official average GDP target to 7% in the 12^th five year plan (down from 7.5%), as he pledged to tackle property prices and inflation and restructure the economy. This hurt property shares in Shanghai and Hong Kong, though losses were pared later and the Shanghai Composite rose 0.93% and the Hang Seng rose 1.42% on Monday. Elsewhere in the region, renewed political tension between North and South Korea ahead of a planned joint US-South Korean military exercise left the KOPSI down 1.23% on Monday amid fears that the ongoing military drill could provoke fresh threats of retaliation from North Korea.

On Tuesday stocks were back within one percent of last month’s cyclical highs as the market continued to absorb Mideast turmoil and inflationary pressures. Manufacturing surveys out of China showed that the sector continued to expand, though tighter monetary conditions in the country have reduced the pace of activity to a six month low. The official PMI slowed to 52.2 from 52.9 in January, and the HSBC PMI fell to 51.7 from 54.4 in January (though some believe these February figures to be somewhat misleading due to distortions from the Lunar New Year Holiday). This cooling in manufacturing activity was welcomed by Chinese investors as they believed it may reduce the need for a more restrictive monetary policy from Beijing. The Shanghai Composite rose 0.51% and the Hang Seng gained 0.25% on Tuesday. India’s HSBC February PMI data also rose, to 57.9 in February from 56.8 in January. This, along with India’s well received budget which surprised markets with aggressive plans to shrink the deficit (which has risen in recent years to 5.5%), led the BSE Sensex up 3.66% on Tuesday. The Nikkei was also up on Tuesday, gaining 1.22% as a weaker yen encouraged exporters and foreign investors continued to favour Japan over local peers, which are struggling to contain inflation. Investors’ flight to safety also saw Gold hit a fresh record high on Tuesday as it reached $1,435 per ounce.

Investors continued to seek protection from strife on Wednesday as unrest in the Middle East showed little signs of easing and concerns about contagion in the region weighed on equity markets. Surging oil prices dominated market sentiment and pulses of frantic oil buying occurred. Asia Pacific stocks were sharply lower, as the Nikkei ended the day down 2.43%, the KOSPI was down 0.57% and the Hang Seng 1.49% lower. In Shanghai, property developers remained under pressure from fears of inflation, and the Shanghai Composite ended the day 0.16% lower.

On Thursday oil prices fell after news of a possible Libyan peace plan. Broader market optimism encouraged investors to shy away from perceived haven bets and gold dropped nearly $25 from its peak. The announcement was not made until 6am GMT, when Asian markets were closing, though investors were heartened after Wednesday’s modest gains on Wall Street and reports of an improving US economy. The KOSPI gained 2.2%, the Nikkei was 0.89% higher and the Taiwan Stock Exchange was up 1.37%. Shanghai industrial shares were hurt by high oil prices, leading the Shanghai Composite down 0.34%. Investors also remained cautious amid persistent concerns over the possibility that Beijing will announce more tightening measures, though the Hang Seng advanced 0.32%.

Oil prices were driven higher again at the end of the week, due to reports of fighting in Libya and civil unrest elsewhere in the region. Asia shares rose on Friday, however, as more stable prices during the session raised investor spirits. The Nikkei ended Friday up 1.02% on renewed optimism about the global economic recovery as the yen’s fall on Thursday encouraged buying of exporters.

Despite investor nervousness creating volatile markets, many Asian indices advanced during the week, with the BSE Sensex gaining 4.46%. The Hang Seng and Shanghai Composite also ended the week higher, gaining 0.48% and 0.85% respectively, and the Nikkei advanced 0.56%.

Oil soared this week as it reached two and a half year highs, with Brent Crude reaching $119.79 a barrel and April Nymax crude oil futures hitting $103.41 during frantic trading on Thursday.

The Shanghai Composite suffered its sharpest fall in over a month on Tuesday, when it fell 2.62% as investors worried that the spike in oil would aggravate inflationary pressures, causing more vigorous monetary tightening from Beijing. This comes after China increased its Bank Reserve Ratios last Friday by 0.5%, the second increase of this year. This latest increase puts China’s reserve ratios between 19.5% and 20% (the highest among the world). This increase appears to have been priced in, however, as market reaction was modest and the Shanghai Composite advanced 1.12% on Monday to three month highs before Tuesday’s loss. The release of the preliminary HSBC China Manufacturing Purchasing Manager’s Index may also have helped ease concerns about an overheating economy at the beginning of the week, as it fell to a seven month low of 51.5 in February following January’s final PMI reading of 54.5. The Shanghai Composite ended the week down 73 basis points, outperforming many of the Indices in the region.

The Topix Index was down 3.25% this week, (falling 1.8% on Tuesday alone), as increased energy costs take their toll on an economy that has to import all of its oil. Moody’s decision to change its outlook on Japan from stable to negative, following Standard and Poor’s decision to cut Japan’s rating last month, did little to support sentiment. Elsewhere across the region, the Hang Seng and KOSPI both ended the week down 2.47%, the BSE Sensex was down 2.80%, the HSCEI was down 3.7% and the Nikkei was down 2.9%.

Vietnam has been especially hard hit by inflationary pressures, after energy costs have risen as much as 24%, causing the Ho Chi Minh Stock Exchange to plunge 4.02% on Monday. It ended the week down 7.33%. Vietnam’s Consumer Price Index also rose at its fastest pace in two years in February, gaining 12% from February 2010, an increase of 1.74% from the previous month.

In New Zealand, stocks were also pulled down after an earthquake of magnitude 6.3 hit Christchurch (the country’s second largest city) on Tuesday causing extensive damage to buildings and many fatalities. The NZX-50 was down 0.69% on Tuesday, and banking and insurance stocks in Australia were hit. The NZX-50 ended the week down 1.43%, and the ASX 200 ended the week down 2.03%.

As a result of these inflationary and geopolitical fears, Gold has benefitted from haven demand and pushed above $1400 an ounce many times during the week. On Thursday gold sat just $20 short of December’s record high of $1431 an ounce. Silver also benefitted from flight to safety, as it pushed above $34 for the first time in 30 years on Tuesday.

Asian markets ended the week on a more positive note, with calmer oil markets providing some relief. Oil from Libya accounts for less than 2% of world oil production, and there have been reports that Saudi Arabia would try to make up the shortfall from disruption in Libya, knocking oil off its highs from Thursday. Investors, however, still remain cautious as the situation in the Middle East continues to temper market sentiment.

On Monday China announced that its trade surplus had narrowed as imports surged 51%, while a 38% rise in exports epitomised the global economic recovery. The surplus declined from $13.1bn in December to $6.5bn in January, sparking speculation that the news may help to quell pressures from the US regarding renminbi depreciation, for now at least. The following day, much-anticipated inflation data showed the CPI rising 4.9% yoy in January, versus expectations of 5.3%. The positive surprise helped allay fears of further near-term policy tightening in the region. On Wednesday the Beijing municipal government announced new property ownership limits which hurt property stocks slightly. The move wasn’t enough to detract from the bull rally this week however, and the Shanghai Composite climbed +3.52%. Neither did the measures’ effect on Hong Kong property groups manage to spoil a strong week there, and the Hang Seng Index gained + 2.07%.

Japan’s strong performance this week stemmed from its positive GDP surprise on Monday, setting the pace for further rallying in the region. The contraction was attributable to the expiration of government subsidies on consumer goods which had a dampening effect on domestic demand, though this isn’t viewed as undermining the economic potential of the world’s third largest economy. Exports had also been hurt in Q4 (-0.7%) by a relentlessly strong yen. Tuesday’s lower than expected inflation numbers in China as well as bullish investor sentiment globally helped buoy commodity prices, which significantly aided Japanese resource stocks. The yen also played its part this week, falling significantly against the dollar and boosting export stocks accordingly. The Nikkei finished the week +2.18%.

In India, while further interest rate hikes would appear imminent in an attempt to quell excessive inflation, data released this week showed the wholesale price index rose 8.23% yoy in January compared to 8.4% in December; movement in the right direction, but not at a sufficient pace. Noteworthy also is that according to the Ministry of Commerce and Industry, food inflation slowed to 11.05% yoy in the week ended February 5^th, compared to 13.07% a week earlier. Bargain buying would seem to have been the driver of India’s success this week, as the BSE Sensex climbed an impressive +4.39%. Elsewhere, South Korea finally found respite against recent weighty foreign outflows, with similar bargain hunting towards the week helping the Seoul Composite Index finish flat. Indonesia also managed to recover some of its recent substantial drawdown and the Jakarta Composite Index gained +1.26%.

China got back to business on Wednesday following a week-long holiday for the Lunar New Year celebrations. Following the 25bps interest rate hike to 6.06% on Tuesday, markets took the announcement in its stride and China was the star performer of the week, with the Shanghai Composite posting a gain of +1.03%.

Hong Kong suffered much more relative to mainland China; energy stocks were hurt at the beginning of the week as oil prices eased, and its property stocks had apparently not fully priced in the inevitable interest rate hike. The pain continued for several days, though some resultant bargain hunting aided a slight rebound on Friday. The Hang Seng finished the week down -4.52%.

Japan has been a beneficiary of the recent capital movements from emerging markets to developed markets, and may be the shining light among its Asian counterparts should the concerns of tightening measures elsewhere prove irrepressible. The region experienced some profit taking towards the end of the week ahead of a three day weekend, and the Nikkei finished the week up +0.59%. South Korea had an apprehensive week ahead of its interest rate announcement on Friday, which was widely anticipated to reveal a 25bps increase. It transpired, however, that rates would be kept on hold at 2.75% and on Friday markets regained some of the losses incurred earlier in the week. The Seoul Composite Index lost -4.58% over the week.

Elsewhere, Indonesia announced that its economy grew 6.9% in the final quarter of 2010, its fastest pace in six years. The revelation added to inflationary concerns in the region, though Bank Indonesia raised interest rates by 25bps to 6.75% last Friday in a bid to allay them. The Jakarta Index fell -2.99% during the week. India continued its torrid 2011, as fears regarding inflation and the effect of high borrowing costs on corporate earnings continue to ravage sentiment in the region. The BSE Sensex dropped -1.55% this week.

Japan experienced a particularly turbulent week. The yen began the week lower and consequently buoyed export stocks, and on Tuesday the Bank of Japan announced that the overnight call loan rate would remain accommodative in the 0.0% to 0.1% range. On Thursday, however, S&P announced that it was downgrading Japan’s credit rating from AA to AA-. Suddenly markets were faced with the realisation that sovereign contagion fears are not confined to within any invisible Eurozone walls and that excessive debt can trigger uneasiness at any point, as noted in our posting last week. A relatively weak yen by week end helped to mitigate some of the tension, and the Nikkei finished the week up +0.84%.

In China, a report on Monday in the People’s Daily newspaper, stating that further bank reserve requirement increases were imminent, ensured that the familiar unease regarding policymakers’ next move remained resilient. On Thursday it was announced that the minimum down payment for second homes would be increased from 50% to 60%. Property developers listed on the Shanghai Composite and Hang Seng Index were hurt by the move as well as the implementation of China’s approved property taxes in Chongqing and Shanghai. The Hang Seng Index finished the week down-1.09%, while China managed to take solace in upbeat data being released elsewhere and the Shanghai Composite posted a gain of +1.36%.

During the week, India’s central bank announced that it would raise interest rates by 25bps in an attempt to curb excessive inflation in the region. Measures taken may have been more dramatic, were it not for recent disappointing industrial production numbers which highlighted the need for on-going accommodative monetary policy. The move hurt banks in the region and the BSE Sensex had a rough week, falling -3.22%. Elsewhere, inflation in Singapore came in higher than expected, rising 4.6% yoy in December, and igniting fresh speculation that further monetary policy tightening measures would be introduced in the near future. The Straits Times finished the week up +1.42%. Korea was spurred by its GDP data release, showing growth of 0.50% in Q4 versus expectations of 0.30%, while it was also revealed that the country’s current account surplus rose to $2.11 billion in December, up from $1.93 billion in November. The Kospi climbed +1.83% over the week.

Investors were cautious throughout the week in anticipation of U.S. corporate earnings announcements and Chinese economic data releases. On Wednesday, strong numbers from U.S. technology stocks, including Apple and IBM, helped boost share prices in their Asian tech counterparts, offering brief respite from an otherwise unsavoury week for the region’s stock markets. Disappointing numbers from U.S. financial stocks, including Goldman Sachs, later in the week hurt banking stocks in the region, especially in Japan and Korea. On Thursday it was revealed that China’s economy grew by 9.8% in 2010, versus consensus expectation of 9.6%, and that inflation slowed to 4.6% versus expectations of 4.7%. The numbers proved enough to worry markets, and most Asian bourses posted losses on Friday, though China posted a healthy +1.41% attributable to bargain hunting on the back of dramatic losses earlier in the week.

The Shanghai Composite reflected a turbulent week surrounding Chinese anxiety, and finished down -2.68%. Concerns regarding tightening were strengthened further on Friday as the Chinese Securities Journal reported that the interest rate hike may occur in early February to coincide with the Lunar New Year. On Monday, the National Bureau of Statistics also revealed that property prices in 70 of China’s large and medium-sized cities had risen +6.4% yoy. The Hong Kong market felt the full strain of uncertainty towards China, and the Hang Seng declined -1.67% over the week.

During the week, the new Japanese minister for economic and fiscal policy, Kaoru Yosano, told the Financial Times that he was concerned about the trajectory of Japanese fiscal debt. Gross national state debt is approaching 200 per cent of GDP, and while currently Japan has no problem financing its debt in the bond market, it cannot be assumed that financing will remain unproblematic indefinitely. “Our fiscal status is at a critical point…the circumstances surrounding Japan may change overnight”, Yosano said. The Nikkei 225 finished down -2.14% as fear regarding China’s economic policies reverberated throughout the Asian economic system.

A brighter outlook in South Korea where the Kospi climbed to a record high on Wednesday and the won also made healthy gains on the dollar, defying the apprehension surrounding capital controls and recent security issues regarding the North. The region was unable to shake off the caution that Asia was branded with this week, however, and the Kospi finished the week down -1.81%. Elsewhere, in Singapore, whose economy is largely export-driven, it was revealed that non-oil export growth had fallen to a 13-month low in December, rising +9.4% yoy. The Straits Times index fell -1.89% this week. In India, Prime Minister Manmohan Singh reshuffled his cabinet this week in an attempt to freshen the government’s appearance following recent corruption scandals and worrying economic data. The BSE Sensex was the star performer this week, managing to post a slight gain of +0.78%.