Asian equities experienced a downturn largely influenced by rising tensions in the Middle East and a strengthening U.S. dollar, with the exception of Japan, which saw gains due to a weaker yen. Mainland China remains on holiday until the following Tuesday, while South Korea was closed in observance of National Day, and Taiwan faced another closure due to a typhoon. In Hong Kong, the market took a breather after a significant rally, with the Hang Seng and Hang Seng Tech indices retracting from recent highs yet remaining significantly above intra-day lows, suggesting that investors were quick to capitalize on perceived dips. The previous day’s market leaders, notably internet and real estate sectors, turned into the worst performers, as profit-taking was common after the Hang Seng had surged by 31% since September 11 and up to 50% since the January 22 lows.
A notable report by Bloomberg highlighted why some investors opted to buy on the dip, referencing insights from former Ministry of Finance economist Jia Kang. Kang suggested that the Chinese government might issue between RMB 4 trillion and RMB 10 trillion in government bonds to stimulate the economy by significantly increasing investments in public projects. He argued that such a move, supported by favorable low-interest rates, could potentially drive economic growth, as RMB 7 trillion would constitute around 5.5% of China’s GDP. While the government’s monetary policy has been activated, the full details on fiscal support remain to be disclosed, though indications from recent government communications suggest more positive plans may soon be unveiled.
As China’s economic conditions show improvement, the expected positive economic data will likely follow suit, aided by favorable year-over-year comparisons. However, analysts have been slow to upgrade price targets for key internet companies, indicating a cautious approach among strategists and economists regarding significant investments in China. Notably, many have refrained from making substantial adjustments to their China overweight positions or reversing recent downward revisions to the outlook of China’s GDP. The question remains whether investors are adequately prepared for the potential upswing, especially as discussions surrounding third-quarter reviews and fourth-quarter outlooks are underway across various investment-focused institutions.
The re-rating of Chinese equities appears to be in an early phase, with indications that pullbacks and corrections are a natural part of this process. The reopening of the Mainland market and Southbound Stock Connect next Tuesday is highly anticipated, with specific attention on stock performance during that time. Meituan, for instance, defied the negative trend by rising 3.96%, indicating investor enthusiasm, as it traded significantly above its average volume levels. Furthermore, brokerage stocks showed resilience against the downward market movement, with indications that many brokerage firms continued operations to facilitate new account openings. Additional positive signs include a record number of railway trips in China and a considerable number of movie tickets sold during the national holiday season, illustrating robust consumer activity.
The Hang Seng index and the Hang Seng Tech sector concluded the trading session down by 1.47% and 3.46%, respectively, with overall trading volumes down significantly compared to the previous day, yet still well above historical averages. A greater number of stocks declined than advanced, with all sectors reporting negative performance. Notably, the real estate sector faced a sharp decline of 5.37%, followed closely by healthcare and staples. Small and value stocks experienced less severe losses compared to their growth and large-cap counterparts, highlighting a shift in investor sentiment during the day’s trading.
Looking ahead, KraneShares is set to host a webinar titled “From Jupiter to Jiangsu: How Astrophysics Informs AI-Powered Investing” on October 3rd at 11 am EDT. Additionally, interested readers can explore new content including an article about the recent expansion of KraneShares’ Volatility Suite with KPRO and KBUF. These developments reflect ongoing initiatives in investment strategies, indicating a dynamic market environment amid fluctuating economic indicators. The closure during the observed holiday period in Mainland China, including the Shanghai, Shenzhen, and STAR Board markets until Tuesday, sets the stage for significant market activities upon reopening.