Asian equities opened the week on a downward trend characterized by low trading volumes, largely influenced by a robust strengthening of the US dollar. The stock markets in Mainland China and Hong Kong experienced significant declines after the mid-morning release of economic data for November, which highlighted a disappointing retail sales growth of just 3%, well below expectations of 5% and previous month’s figures of 4.8%. This shortfall in retail sales was interpreted by many investors as a signal that the Chinese economy would need additional policy support aimed at enhancing domestic consumption, which could have far-reaching implications for economic policy moving forward.
Despite the negative reception of retail sales figures, a closer inspection of the data reveals a more nuanced picture. Certain sectors experienced significant year-over-year growth, with the automotive sector leading with an increase of 6.6%, followed by furniture sales rising 10.5% and restaurant revenues growing by 4%. A critical factor that likely impacted the numbers for November was the timing of the Singles Day sales, which began earlier this year, effectively pulling a large portion of consumer spending into October. As a result, October retail sales saw a more robust growth of 4.8%, exceeding the 3.8% forecast, suggesting that certain categories were resilient amid broader economic challenges.
Amidst the poor market performance, policymakers in China convened for discussions, indicating their commitment to implementing strategies outlined in the Central Economic Work Conference (CEWC). Premier Li chaired a State Council Executive Meeting focused on stimulating the economy. The People’s Bank of China (PBOC) and the National Development and Reform Commission (NDRC) also met separately, fuelling expectations of possible interest rate cuts following the recent adjustments observed in the U.S. Following the Fed’s interest rate cut, domestic markets remained fixated on verbal assurances from officials about policy support rather than concrete actions, resulting in a lack of confidence among investors in growth assets.
Investor sentiment remained bleak as indications showed capital exiting the Hong Kong market, with mainland investors selling a net $49 million worth of Hong Kong-listed stocks and ETFs. The market indices reflected this sentiment, with the Hang Seng Index and the Hang Seng Tech Index declining by 0.88% and 1.45% respectively. The trading volume was notably lower, decreasing by 15.4% from the previous trading session, indicating caution among traders. Notably, a decline in short turnover suggests increased hesitancy in taking bearish positions in the market, even amidst the downward price action.
The broader trends in equity performance were mirrored across regional exchanges. In Shanghai, Shenzhen, and the STAR Board, the indices experienced decreases of 0.16%, 1.03%, and 1.47% respectively. Here, too, a pronounced divide emerged between the performance of value sectors versus growth sectors, with the utilities and energy sectors demonstrating resilience while technology, healthcare, and real estate faced declines. Subsector performances also varied sharply, revealing a lack of uniform recovery amid pressure from weakening retail indicators.
On the macroeconomic front, the Chinese yuan and the Asian dollar index faced depreciation against the US dollar, while bonds rallied in response to the faltering equities. Commodities such as copper and steel registered declines, reflecting broader trends of reduced demand amid a sluggish economic outlook. In summary, while there are areas of consumption that are displaying resilience, the overwhelming sentiment is one of caution, as investors await concrete policy measures that could stabilize the economy and restore market confidence. This cautious stance underscores the challenges faced by China as it navigates an increasingly complex economic landscape, marked by domestic pressures and global uncertainties.
