Asian equities portrayed a mixed landscape, with most markets trending upward except for Mainland China and Hong Kong, which experienced declines, albeit less severe than the drop in US ADRs reported the previous day. South Korea remained closed for Hangul Day, a national holiday that honors the creation of the Korean alphabet. Notably, the US dollar appreciated against various Asian currencies, coinciding with a rise in the US 10-year Treasury yield, which surpassed the 4% threshold. This environment raised speculation about rapid capital movements, particularly with the Northbound Stock Connect seeing volumes significantly higher than the average, indicating that “fast money” may have exited Mainland China stocks. Hedge funds may have also influenced this trend by taking profits amid a challenging environment, resulting in steep declines for mega-cap stocks such as CATL and Kweichow Moutai.
The domestic landscape revealed an intriguing contrast, showcasing resilience in stocks favored by local investors. Notable gains were observed in brokers like East Money and Citic, along with Semiconductor Manufacturing, partly due to a reported increase in global semiconductor sales. It appeared that many retail investors in China, who had entered the market early, opted to secure profits or exit their positions at break-even levels. However, positive news came from the Ministry of Finance (MoF), which announced a forthcoming press conference aimed at discussing fiscal policy adjustments to stimulate high-quality economic development. Such announcements carried a tone of optimism, especially following recent directives from the National Development and Reform Commission (NDRC) indicating that effective fiscal measures would be introduced following the approvals by the National People’s Congress.
In tandem with these fiscal policies, a recent meeting between Prime Minister Li and economic leaders further stressed the need for incremental policies to be rolled out efficiently. Despite this backdrop, Hong Kong’s market opened positively but was pulled down by the underperformance in Mainland stocks. The New Year holiday sales data from Meituan, a local services platform, stood out as a bullish indicator amid the broader market downturn, but it was largely overlooked by market participants. Furthermore, net selling from Mainland investors on Southbound Stock Connect hinted at a cautious approach to foreign equities, with a significant sell-off centered for many stocks, although Alibaba remained a notable net buy.
Taking a broader perspective, the drastic shifts in market dynamics were somewhat initiated by the People’s Bank of China’s (PBOC) bold monetary interventions on September 24. This included significant cuts in interest rates, adjustments to bank reserve requirements, and measures aimed at reviving the flagging real estate market, illustrated by retrospective cuts in mortgage rates and down payment requirements. However, the scale and immediate impact of these policies raised questions as the markets reacted more positively to the sheer magnitude of stimuli rather than their specific outcomes. The rapid shift in sentiment was dampened by skepticism toward the NDRC’s subsequent press conference, where expectations for a more substantial economic stimulus were not met, leading to market volatility as investors adjusted their positions.
Amidst such fluctuations, investor skepticism surfaced, revealing a pronounced wariness toward the economic indicators and regulatory actions enacted by the Chinese government in recent years. This cautious atmosphere appeared particularly problematic for foreign investors, who have extensively monitored and reacted based on China-related financial narratives. The NDRC’s underwhelming communications underscored a lack of confidence among both domestic and foreign investors. Nevertheless, it was essential to note that despite the skepticism toward government policies, shares, particularly from founding companies, displayed a willingness for buybacks – a move interpreted as a sign of these companies’ perceived undervaluation amidst market fluctuations.
Looking ahead, the trajectory for Mainland China and Hong Kong stocks continues to necessitate further fiscal stimulus and clear communication from policymakers to restore investor confidence. Despite a recent correction that saw Hong Kong stocks rise approximately 20% over the previous month, today’s market saw declines across all sectors led by materials and industrials. Metrics indicated a notable increase in stock turnover, particularly in short positions, illustrating a reactive stance from traders amid the uncertainty. The specific sectors experiencing declines, including communication services and healthcare, prompted discussions on the implications for the overall investment landscape moving forward. Thus, investor sentiment will likely hinge on the Ministry of Finance’s upcoming announcements and any strategies that can effectively bridge skepticism, leading to a more stable investment climate for both domestic and foreign stakeholders.
