Asian equities saw a rebound following the release of weaker US inflation data, which occurred during a light holiday trading week with minimal news flow. In an interesting twist reminiscent of the sitcom character George Costanza from “Seinfeld,” underperformers in Hong Kong and Mainland China outpaced their outperforming counterparts, highlighting a trend where the value factor gained traction over the growth factor. Notably, major tech firms such as Tencent and Meituan both saw declines of -1.45% and -1.89%, respectively. This contrasted sharply with the stronger performance from the banking sector, suggesting a broader shift among investors favoring more traditionally stable sectors amidst ongoing economic uncertainties.
Despite the overall challenging environment for growth stocks, there were some notable gains for individual companies. Alibaba experienced an uptick of +1.12%, while Baidu saw a more substantial increase of +3.17%, primarily due to reports that the company’s artificial intelligence (AI) systems are still contenders to support China’s iPhone operations. Additionally, Tencent’s WeChat gifting functionality showed promising integration with East Buy, which reported an increase of +5.87%. In contrast, Weimob’s stock fell by -3.5% after a substantial upswing in its value. This divergence indicates a complex market where certain growth stocks may still attract investor interest even as broader trends suggest caution.
In terms of fixed income, high-yielding value sectors and subsectors outperformed their peers as China’s 10-Year Treasury bond hit a historic low of 1.71%, stoking speculation about a potential shift away from bonds. This pivot was widely discussed in several articles across Mainland media, although the actual trading behavior of Mainland investors appeared stagnant. Meanwhile, the so-called “National Team,” composed of investment firms linked to sovereign wealth funds, seemed proactive in the Mainland market, noted by above-average trading volumes in preferred ETFs and a net purchase of $340 million in Hong Kong-listed stocks via the Southbound Stock Connect scheme.
Political developments also played a role in market sentiment. An article in The Wall Street Journal highlighted that recent legislative efforts stripped out several provisions aimed at restricting investments in China, a significant change since the Trump administration’s previous stance. This maneuver suggests a strategic pivot towards a more constructive relationship with China, hinted at through indicators like President Trump’s invitation to Xi Jinping and the avoidance of punitive measures against entities like TikTok. It reflects a growing recognition among investors and observers that the narrative surrounding US-China relations may be shifting, even if mainstream media coverage has yet to catch up.
The performance of markets illustrated a clear divide between sectors, driven by shifts in investor sentiment. The Hang Seng and Hang Seng Tech indexes saw increases of +0.82% and +0.31% respectively, despite a -28% decline in trading volume compared to the previous day. The day ended with 310 stocks advancing compared to 170 that fell, with Financials leading the pack as they surged by +2.57%. Conversely, the Communication Services sector underperformed, demonstrating that even within an upward trend, not all sectors are equally favored. Meanwhile, Greater China saw varying results, with Shanghai, Shenzhen, and the STAR Board indexes declining by -0.50%, -2.29%, and -1.25% respectively, as the negative sentiment in the tech and real estate sectors weighed heavily on performance.
The effects of currency fluctuations and commodity prices were also notable during this trading period. The Chinese yuan (CNY) maintained a stable exchange rate at 7.30 against the dollar and 7.59 against the euro. Yields on key government bonds remained unchanged, indicating that monetary policy and interest rate sentiments held steady. Commodity prices saw minimal shifts, with copper prices increasing by 0.41% and steel prices edging up by 0.03%. These elements collectively reflect the broader economic conditions within Asia, influenced by international market trends, geopolitical changes, and shifts in investor psychology as they adapt to evolving narratives in US-China relations and domestic economic indicators. Overall, while individual companies exhibited resilience, the wider market environment presented a complex landscape for investors navigating these intertwined dynamics.