Asian equities displayed a mixed performance overnight, primarily influenced by a strong move of the US dollar against regional currencies, particularly fueling underperformance in Mainland China, Taiwan, and the Philippines. The most significant development came after market hours when Reuters reported that the National People’s Congress (NPC) is poised to approve a substantial RMB 10 trillion (approximately $1.4 trillion) fiscal stimulus package, equivalent to 8% of China’s GDP, through special bond issuance. This stimulus is expected to boost market sentiment and has already led to a rise in US-China American Depository Receipts (ADRs) during pre-market trading. The fiscal measures include using RMB 6 trillion to alleviate local governments’ off-the-books debt risks, RMB 4 trillion in special-purpose bonds to stimulate property purchases, RMB 1 trillion aimed at boosting consumer consumption, and another RMB 1 trillion designated to strengthen banks’ balance sheets.
Reports prior to the Reuters article suggested that the Ministry of Finance has been strategizing ways to tackle local government hidden debts. Finance Minister Lan Fo’an highlighted plans for a one-time increase in local government debt ceilings to facilitate replacing concealed debts with newly issued governmental bonds. However, the approval and specific details remain tentative until the NPC concludes on November 8th. The prospect of substantial stimulus has raised questions among foreign investors and strategists who have been hesitant to engage with Chinese markets, particularly with upcoming US elections adding to market unpredictability. Notably, Mainland China and Hong Kong have significantly outperformed US equities and other emerging markets since the end of August and early October.
Regional trading volumes increased with Hong Kong’s growth stocks leading the advancements, particularly in the internet and electric vehicle sectors. Although overall trading in Hong Kong showed a mixed picture, certain stocks experienced notable gains, including Meituan and HSBC, following strong financial results. Mainland investors were active, purchasing an impressive $869 million in Hong Kong stocks through the Southbound Stock Connect, with substantial net buying of Alibaba and Meituan. Conversely, several significant Mainland companies saw declines in stock value, reflecting volatility as major foreign investor data remains unattainable after regulatory changes.
Simultaneously, economic indicators reveal a cautiously optimistic outlook for China. The Conference Board’s Leading Economic Index fell slightly by 0.2% in September, reflecting consumer confidence issues, although the Coincident Economic Index showed a 0.6% increase. September retail sales exceeded economist forecasts, demonstrating a noteworthy 3.2% rise compared to previous months. Despite the challenges posed by hampered consumer sentiment, there is evidence that sector-specific policies have started benefiting targeted industries, particularly the automobile and EV sectors. This aligns with the gradual rollout of stimulus policies intended to stimulate economic growth.
Despite mixed performances in Asia, the Hang Seng and Hang Seng Tech indices saw gains, indicating strong activity in certain sectors, notably consumer discretionary and technology. Nevertheless, the overall market sentiment reflected a larger trend of declining stock values across sectors in both Shanghai and Shenzhen, where real estate and healthcare saw significant downturns. The trading volumes on Northbound and Southbound Stock Connects indicated heightened investor engagement against the backdrop of these divergent performances. The volatility in equity markets illustrates a complicated reaction to external and domestic economic developments, with regional currencies losing ground against the US dollar.
With the expectation of robust fiscal stimulus from the Chinese government and continuing economic adjustments, market players are urged to remain vigilant and responsive to updates from the NPC. An upcoming educational webinar on November 12th is scheduled to discuss the impact of private equity buyout funds through public equity investment, signaling ongoing interest in exploring market dynamics amidst evolving economic conditions. Meanwhile, the latest coverage on KraneShares’ offerings continues to draw attention, especially regarding the potential of China A-shares amidst these developments, showing how global investors are keenly watching how the interplay of domestic policies and external pressures will affect the broader financial landscape.