Asian equity markets showed a mixed picture overnight, predominantly influenced by Taiwan Semiconductor’s impressive earnings report that exceeded market expectations. Meanwhile, the Chinese government’s attempts to address the ongoing economic situation have left investors feeling underwhelmed. Recent government announcements included renovations for 1 million homes and a significant doubling of funds allocated towards key real estate projects, but the lack of more detailed plans during various press conferences has raised concerns. Hong Kong’s Hang Seng and the Shanghai and Shenzhen markets initially saw gains before slumping in the afternoon session, eventually closing near their lows for the day as it became clear that no further specifics were forthcoming.
The sentiment around potential economic measures was somewhat pessimistic, as some analysts suggested that the National People’s Congress (NPC) meeting might be delayed until after the U.S. elections. This view, however, was challenged by other commentators who stressed the urgency of addressing the domestic economy’s ongoing challenges, asserting that a delay could send negative signals about the government’s capability to manage its economic policies. Despite this, there appeared to be a belief that the recent pullbacks in market performance might serve as a decent entry point for investors, anticipating further positive developments due to supposed strong coordination among government agencies.
In terms of market performance, real estate faced the most significant challenges in both Hong Kong and Mainland China, where traders opted to take profits. Notably, distressed developer Sunac saw a steep decline of 27% following the issuance of new shares amid its recovery strategy. Despite this, domestic investors showed resilience by buying significantly into Hong Kong stocks, including Alibaba, Xiaomi, and Tencent, with net purchases amounting to over $1 billion. Meanwhile, Baidu’s CEO, Robin Li, spoke at a Harvard Business Review conference, expressing concerns about an “inevitable” bubble in the AI sector, likening the current AI boom to the dot-com explosion; he also emphasized the importance of being a first mover in the technology landscape.
In recent government communications, multiple agencies outlined their strategies to revive the real estate market, including initiatives to renovate homes and strengthen support for homebuyers, particularly families with two or more children. Key ministries discussed the allocation of special bonds for affordable housing and adjustments to value-added tax related to property transactions. Furthermore, the People’s Bank of China (PBOC) outlined plans for mortgage refinancing, aiming to benefit a significant number of households. However, specifics regarding the financing and implementation of these initiatives were scarce and generally received muted reactions from the market.
Hong Kong’s markets ended mixed, as the Hang Seng and Hang Seng Tech indexes fell by 1.02% and 1.19%, respectively. Trading volume also dipped by 8%, although it remained above the one-year average. In this mixed landscape, technology was the only sector to show gains, while real estate and materials reflected negative trends, struggling to attract investor confidence. Meanwhile, Northbound Stock Connect volumes exhibited considerable activity as mainland investors continued to back Hong Kong-listed companies, particularly in the technology sector, despite the overall precarious sentiment within the real estate space.
On the Mainland front, market divergence was evident, with Shanghai and Shenzhen closing down by 1.05% and 0.56%, while the STAR board managed a small gain. The technology and communication services sectors were the sole beneficiaries in an otherwise challenging environment. The macroeconomic backdrop remained turbulent, evident in fluctuating currency exchange rates, with the Chinese yuan witnessing slight depreciations against the U.S. dollar and the euro. Meanwhile, commodities showed mixed signals, with copper prices ticking upwards while steel prices slumped, reflecting ongoing uncertainties in the industrial sector.
Overall, despite the mixed signals in capital markets, there are emerging signs that investors are cautiously optimistic about the potential for recovery in the Chinese real estate sector and more broadly in the economy. Upcoming discussions and the November webinar on private equity buyouts suggest a continued focus on seizing opportunities amidst market volatility, as stakeholders keep watch over government policy adjustments and their implementation in the coming weeks. The evolving economic landscape will require patience and insightful navigation from investors as they seek to uncover new opportunities and growth drivers in a complex environment.
