Asian equities exhibited a mixed performance recently, with Japan concluding the session on a positive note while Hong Kong and Mainland China grappled with significant challenges. The day started with an adverse sentiment as AMD’s disappointing earnings had a ripple effect on the semiconductor sector, significantly impacting share prices of key players in Hong Kong. Hua Hong Semiconductor and Semiconductor Manufacturing International (SMIC) faced declines of 4.63% and 7.32% respectively, echoing broader concerns affecting this crucial industry segment.
In addition to the semiconductor woes, the European Union’s announcement to implement electric vehicle tariffs and anti-subsidy taxes on Chinese car manufacturers has created further tension in the markets. Companies that opt to cooperate will incur a 20.70% tariff, while those that do not will face a steep 35.30% levy. This news led to declines in the stocks of major EV manufacturers listed in Hong Kong, such as BYD, Li Auto, and Nio, which dropped between 0.67% and 6.58%. Similarly, traditional auto companies like Geely Auto and Great Wall Motors were also impacted due to anticipated tariffs ranging between 17%-18.8% for some brands. Tesla, although facing less severe penalties at 7.80%, still reflected the broader strain on the automotive sector as it navigates international trade challenges.
The financial sector was also under pressure as investors reacted to PetroChina’s latest financial results, which failed to instill confidence, leading to declines for major banks and insurance firms in both Hong Kong and Mainland China. While Q3 earnings indicated a slight increase in profits for major banks, the negative sentiment overshadowed these results. Notably, the Agricultural Bank of China saw a year-on-year increase of 5.88% in net profit, along with positive results from the Industrial and Commercial Bank of China (ICBC). On the other hand, China Life reported impressive growth in revenue, underlining the varied performance within financial services.
Amidst a backdrop of economic uncertainty, recent discussions on stimulus measures from Chinese officials have gained traction, igniting debate about the appropriate fiscal approach. Economists have suggested raising RMB 10 trillion through special purpose bonds for economic stimulus, highlighting the urgent need for short-term measures to stabilize the economy. However, concerns were raised about the risks of expanding the monetary base indiscriminately, which could lead to capital misallocation favoring wealthier individuals instead of addressing the challenges faced by lower-income groups and vulnerable populations.
Investors exhibited cautious behavior, pulling back from Hong Kong-listed stocks as seen through substantial net selling activity in the Southbound Stock Connect scheme. This cautious approach reflects a broader sentiment characterized by uncertainty related to domestic consumption amid structural economic issues. However, the real estate sector in Mainland China displayed signs of resilience, particularly with reported surges in home sales in Shenzhen and Shanghai, indicating some optimism within the property market. Conversely, the overall sentiment was moderate with mixed trading across sectors, as major indices in Hong Kong fell, led down by significantly weaker performances in health, consumer discretionary, and materials sectors.
Looking ahead, the release of the ‘official’ Manufacturing PMI and Non-Manufacturing PMI figures will be pivotal for gauging the economic landscape in China. These indicators will provide critical insights amid ongoing discussions about fiscal policy and the operational financial environment facing companies. The investment climate remains tentative with shifts in equity allocations observed among professional mutual funds, showcasing a slight increase in stock positions since late September—yet questions remain over the sustainability of this trend. As macroeconomic forces continue to shape market dynamics, a close watch on policy measures and economic indicators will be essential for investors navigating these tumultuous conditions.