Asian equities faced a challenging session with significant losses across several markets, including South Korea, India, Thailand, Indonesia, and the Philippines, each dropping by more than 1%. Mainland China and Hong Kong also saw modest losses, attributed to light trading volumes and intra-day volatility. Despite some positive economic news, particularly following the Central Economic Work Conference, the markets reacted rather tepidly. The focus was on the Chinese government’s potential shift in economic policy, favoring consumer stocks over technology, which might have been prompted by the recent policy statements laid out by Premier Li.
In a noteworthy meeting, President Trump discussed collaboration between the United States and China with TikTok’s CEO, emphasizing the potential for mutual problem-solving on global issues. The speculation surrounding President Xi’s attendance at Trump’s inauguration continues, with the political dialogue hinting at a complex relationship between the two countries. The context of the meeting comes as the markets seek signs of stability and support following the recent announcements from the Chinese government regarding fiscal policies and economic direction.
Market activity picked up post-lunch after a Reuters report indicated that China’s budget deficit would rise to 4% in 2025 from 3% in 2024, while maintaining a GDP growth target of around 5% for the same year. However, this announcement initially seemed to attract skepticism. Analysts generally dismissed the anticipated RMB 1.3 trillion in added government spending, viewing it as a base case rather than a definitive figure. Investors exhibited a sense of caution as the ultimate plans for fiscal policy would not be officially confirmed until the legislative Dual Sessions in March. Nonetheless, the announcement did provide a temporary boost to market sentiment.
Throughout the session, Mainland mega-cap stocks outperformed large-cap, mid-cap, and small-cap stocks, signifying the influence of larger companies on the market indices. This phenomenon suggests that while some stocks may be struggling, the financial landscape could still be buoyed by mega-cap companies, which tend to lead market performance. The prevailing ethos for investors appears to gravitate towards focusing on high-impact stocks rather than diversifying too broadly across thousands of smaller-cap options, which are currently underperforming.
After market close, futures for Mainland mega-cap stocks were slightly up by 0.13%, and Hong Kong registered a healthy inflow of $1.026 billion, indicating ongoing interest from Mainland investors despite the broader market malaise. Yet, the trend of foreign investors remaining reticent towards Hong Kong growth stocks signals a shift towards US equities, as highlighted in a recent Wall Street Journal article detailing a significant outflow from international stock funds in favor of American markets. The broader trend illustrates a global capitulation among investors, with many seeking refuge in growth-driven US stocks.
Ultimately, both the Hang Seng and Hang Seng Tech indices experienced declines, reflecting market concerns across all sectors, particularly in materials, consumer staples, and real estate. The trading volumes remained elevated compared to historical averages, underlining the ongoing volatility and cautious sentiment among traders. In contrast, certain sectors such as consumer staples and discretionary spending showed some resilience, suggesting there are pockets of strength even amid overall market weakness. As the Chinese economy navigates through these uncertainties and potential policy shifts, the broader investment environment remains to be seen.
