Asian equities experienced a mixed performance overnight due to light trading volumes and a lack of significant market-moving news. South Korea’s market was on an upward trend, showcasing two consecutive days of +1% gains, an occurrence not seen since early July, while the Philippines lagged behind, showing underperformance compared to its regional counterparts. The market sentiment in Mainland China and Hong Kong was relatively subdued as top policymakers convened for the China Economic Work Conference (CEWC). The discussions from this conference often outline broader economic strategies rather than specific actions, leaving investors keenly awaiting the official plan expected to be finalized during the upcoming Dual Sessions in March.
A specific point of discussion that emerged was a report suggesting that the Chinese government might intentionally weaken the Renminbi to counteract any tariffs imposed by the Trump administration. This assertion may seem illogical, particularly given the context of China’s ongoing interest rate cuts which, combined with U.S. Federal Reserve policy shifts, play a significant role in currency value fluctuations. The reaction from China’s bond market was telling, as the yield on the 10-year government bond experienced a significant drop to a 52-week low of 1.84%, indicating a lack of foreign investment interest largely attributed to tariff concerns.
At the CEWC, it is anticipated that discussions may lead to support measures targeting housing and local governments, in addition to proposed expansions of consumption subsidies beyond automobiles and home appliances to include items such as consumer electronics and textiles. Given that the automobile manufacturing sector in China employs a vast workforce, including notable players like BYD with over 700,000 employees, the potential effects of supportive measures on employment and consumer spending could be substantial. There may also be deliberations surrounding structural reforms, such as enhancements to China’s social safety net and rights for migrant workers, which align with the goal of bolstering domestic consumption.
Investor sentiment among mainland Chinese investors seemed optimistic for the consumer sector, as reflected in sub-sector performance that included gains in retail and leisure products. This consumer-focused buying behavior might indicate confidence in upcoming consumption-driven policy changes. Conversely, the consumer sentiment in Hong Kong appears weak, which could be indicative of contrasting economic conditions across the two regions. The presence of foreign investors remains tentative, as they await definitive policy changes to bolster confidence. Notably, the electric vehicle (EV) sector showed resilience, driven by robust November sales figures, which might suggest a growing consumer preference in that segment.
Hong Kong markets ended on a downward note, with the Hang Seng and Hang Seng Tech indices declining by -0.77% and -1.31%, respectively. The trading volume significantly dropped, with short turnover also seeing a reduction. Notable sector performance was seen in utilities, materials, and consumer staples, which posted small gains, contrasting with declines in technology and real estate sectors. Mainland investors were active in the market, purchasing a substantial amount of Hong Kong stocks and ETFs, which underscores a degree of optimism despite broader market retreats. The recent trading patterns suggest that investors are selectively positioning themselves based on the anticipated developments from the CEWC.
In terms of the performance of different stock exchanges, Shanghai, Shenzhen, and the STAR Board witnessed mixed results with slight gains in Shanghai and Shenzhen, while the STAR Board showed a decline. Growth and small-cap stocks generally outperformed their value and large-cap counterparts in these indices. The top-performing sectors included energy and real estate, while financials and communication services faced setbacks. Northbound Stock Connect volumes indicated heightened trading activity, reflecting increased cross-border investments despite ongoing volatility, with the CNY slightly depreciating against the U.S. dollar along with other economic indicators.
In summary, the mixed performance across Asian equities highlights the intricate dynamics between domestic policy discussions, investor sentiment, and external economic pressures, including the broader implications of U.S.-China relations. The outcomes from the CEWC are eagerly awaited, with many banking on substantial policy shifts that could invigorate consumer spending and stabilize market conditions. Future trends may hinge on both domestic reforms and the global economic climate, especially as foreign investors’ cautious approach continues to shape market trajectories in the region.
