Asian equities surged recently, buoyed by significant gains in several countries, including Indonesia, which rose over 2%, and Japan, South Korea, Taiwan, Pakistan, and Thailand, each recording increases of more than 1%. This upward trend reflects a broader positive sentiment in the region’s markets. However, the offshore renminbi (CNH) experienced a decline against the US dollar, closing at 7.29 after hitting an intra-day low of 7.31, reflecting market volatility amid recent geopolitical tensions and economic expectations. This depreciation doesn’t seem linked to interest rate changes, as US Treasury yields dropped overnight, indicating that external factors, such as President Trump’s tariff threat against BRICS+ countries that transition away from the US dollar, may be at play. Moreover, the Euro’s struggles against the dollar and the Yen’s appreciation likely contributed to CNH’s performance.
In addition to real-time trading dynamics, the upcoming China Economic Work Conference (CEWC), scheduled for December 11-12, has caught investors’ attention. Analysts anticipate that the conference will reassert the 2025 GDP target of approximately 5%, with expectations of a fiscal deficit increase ranging from 3.5% to 4%. Despite foreign investors’ growing focus on domestic consumption in China, there remains an underappreciation for previous stimulus measures aimed at the housing market. Local governments have also maintained a consumption-centered focus, although the absence of a specific date for this month’s Politburo meeting raises speculation about potential policy announcements related to these macroeconomic issues.
After a period of post-stimulus pullbacks, indices in Hong Kong and Mainland China have rebounded, notably driven by the improving Citigroup China Economic Surprise Index. Among the Hong Kong-listed internet stocks, performance varied significantly; while Baidu and Tencent saw gains owing to developments like Hong Kong’s approval of Baidu’s robo-taxis and ongoing stock buyback programs, other notable companies such as JD.com and Meituan faced pullbacks due to profit-taking. Overall, value-oriented sectors outperformed growth stocks, marking a trend where defensive investment strategies gained favor amidst fluctuating market conditions.
The ongoing technology-related tensions between the US and China were underscored by the US Commerce Department’s decision to add over 130 Chinese firms to its Entity List, a move that complicates technology exports from the US. While many companies labeled under this new restriction downplayed its significance due to their focus on domestic markets, concerns loom regarding the broader implications on US semiconductor firms dependent on China. On the Chinese side, a regulatory response involved restricting exports of specific materials vital for semiconductor manufacturing. Stakeholders like the China Semiconductor Industry Association stated that their members should remain cautious when purchasing US-made semiconductors, indicating a rising wariness in the tech sector.
In the Hong Kong market, both the Hang Seng and Hang Seng Tech indices experienced gains despite a 13% decrease in trading volume compared to the previous day, signaling a thriving market atmosphere wherein 324 stocks advanced against 159 decliners. The notable sectors that drove this performance included energy, financials, and utilities, though consumer staples registered minor losses. The rebound in activity from prior stimulus levels was reflected in the Southbound Stock Connect, where Mainland investors poured $37 million into Hong Kong stocks. The mixed outcomes across different sectors illustrate the dynamic nature of market sentiments and the balancing act between growth versus value strategies among investors.
Furthermore, the performance of Shanghai, Shenzhen, and the STAR Board varied, with minor declines in the STAR Board counterbalancing gains in Shanghai. This divergence highlights ongoing complexities within the Chinese markets, revealing how value and large-cap stocks have managed to outshine their growth and small-cap counterparts amid current economic conditions. The market has also seen fluctuations in foreign exchange rates, with the CNY recently dipping while the Asia dollar index slightly increased against the US dollar. Nevertheless, as evidenced by strengthening commodity prices for copper and steel, there is an underlying resilience that hints at possible support for a continued rally in the region’s equities as they navigate through intertwined local and global economic landscapes.