Asian markets saw significant gains on Tuesday as investors reacted positively to China's announcement of a shift toward looser monetary policy to stimulate its struggling economy. The move, coupled with Seoul's recovery from recent political turmoil, provided a boost to regional sentiment despite mixed signals from Wall Street.

In a rare pivot, Chinese President Xi Jinping and top officials pledged to adopt a more "active fiscal policy" and "appropriately relaxed" monetary measures, marking a departure from their longstanding "prudent" approach. The announcement has raised expectations for further rate cuts and increased lending support, aiming to address challenges such as weak domestic consumption and a prolonged property crisis.

Market Reaction

Hong Kong's Hang Seng Index surged 1.4% in early trading, extending a 2.8% rally from Monday.

Shanghai Composite Index rose 1.5% in early trade, reflecting optimism over potential fiscal and monetary actions.

However, analysts remain cautious. Shehzad Qazi of China Beige Book noted that while Beijing has saved its financial firepower for an uncertain 2025, actions must follow words to rebuild business and consumer confidence.

Chris Weston of Pepperstone Group added, “Investors are wary, as past announcements have often lacked follow-through, dampening the potential for sustained rallies.”

South Korea's Kospi Index rebounded 2.4%, recovering from a five-day losing streak driven by political instability. The market turmoil followed President Yoon Suk Yeol’s brief declaration of martial law on December 3, which lawmakers overturned hours later.

Despite surviving an impeachment motion, Yoon faces mounting pressure from investigations into alleged insurrection and other charges. The uncertainty has weighed on the South Korean won, which remains near two-year lows despite a slight recovery on Tuesday.

Mixed Asian and Global Market Signals

Elsewhere in Asia, markets displayed mixed performance:

Tokyo’s Nikkei 225 edged up 0.1%.

Singapore and Manila posted gains, while Sydney, Taipei, Wellington, and Jakarta slipped.

In global markets, Wall Street offered a lukewarm lead with the S&P 500 and Nasdaq pulling back from record highs, as investors await U.S. inflation data later this week.

Key Market Indicators (as of 0230 GMT)

Hong Kong Hang Seng: +1.4% at 20,692.44

Shanghai Composite: +1.5% at 3,492.45

Seoul Kospi: +2.4% at 2,416.00

Tokyo Nikkei 225: +0.1% at 39,197.42

Currencies:

Euro/dollar: $1.0553 (slightly down)

Pound/dollar: $1.2747 (slightly up)

Dollar/yen: 151.16 yen (slightly down)

Commodities:

WTI Crude: $68.20 per barrel (-0.3%)

Brent Crude: $71.98 per barrel (-0.2%)

While China's announcement has injected optimism, sustained growth will depend on tangible measures and broader confidence-building. Similarly, South Korea’s market recovery hinges on political stability and clarity in governance. Investors across the region are watching closely as key geopolitical and economic events unfold.