Asian equity markets exhibited a robust performance, primarily led by Indonesia, which surged over 2%. Other significant gainers included Japan, Pakistan, South Korea, Taiwan, and Thailand, all of which experienced increases greater than 1%. In the currency market, the offshore traded renminbi (CNH) fell against the US dollar, closing at 7.29 after reaching an intra-day low of 7.31. The dynamics in the currency trading were not influenced by interest rate differential changes, as overnight US Treasury yields declined. The anticipation of a potential Federal Reserve cut in December by 0.25 percentage points continues to shape market expectations. Interestingly, President Trump’s threat of imposing a 100% tariff on BRICS+ nations ceasing the use of USD may have exerted pressure on the renminbi, alongside the Euro’s struggles against the US dollar amid expected ECB rate cuts and the Yen’s appreciation.
In Hong Kong and Mainland China, trading showed volatility early on but eventually trended upward after the confirmation of dates for the China Economic Work Conference (CEWC) scheduled for December 11 and 12. The market anticipates the government will maintain a GDP growth target of “around” 5% for 2025, with some projecting within a range of 4.5% to 5%. Moreover, an uptick in the fiscal deficit is expected, moving between 3.5% to 4%. However, foreign investors’ intense focus on domestic consumption overlooks the historical context of previous stimulus efforts, particularly regarding housing. While there is speculation about the timing for the Politburo meeting, expectations remain that it will occur over the weekend.
Amid the cautious market sentiment, the Citigroup China Economic Surprise Index has been trending upwards, which has positively affected Hong Kong and Mainland China indices after a post-stimulus pullback. Notably, while internet stocks like Baidu and Tencent enjoyed gains, others such as Meiutan and JD.com faced profit-taking. The Hong Kong government’s approval of Baidu’s robo-taxi licensing contributed to its stock increase. Meanwhile, Mainland China’s semiconductor and growth stocks experienced profit-taking as well. This fluctuation in stocks may reflect a ‘revenge of the nerds’ theme, where slower growth and value sectors outperformed more volatile growth stocks.
Political tensions between the US and China escalated, with the US government adding over 130 firms to its Entity List, which necessitates additional licensing for operations. Despite this, many Chinese companies claim this will not significantly impact their business, primarily due to their domestic focus. Notably, Chinese authorities are responding by restricting the export of critical materials used in semiconductor manufacturing. Various industry associations are advising their members to exhibit caution when dealing with US-made semiconductors, underlining the potential unreliability of future shipments as geopolitical tensions mount.
In Hong Kong, market performance was characterized by growth in the Hang Seng and Hang Seng Tech indexes, with gains of 1.00% and 0.27%, respectively. The trading volume saw a decline of 13% compared to the previous day but remained aligned with the one-year average. Value and small-cap stocks notably outperformed larger counterparts, aided by gains across energy, financials, and utility sectors. Conversely, consumer staples faced slight declines. Southbound Stock Connect volumes returned to pre-stimulus levels as Mainland investors resumed purchases, albeit with some net selling seen across selected stocks.
Lastly, the Shanghai, Shenzhen, and STAR Board posted mixed results, with varying stock performances and sector trends. While utilities, energy, and financial sectors exhibited upward movement, technology, healthcare, and real estate sectors faced losses. Noteworthy was the divergence in performance across different allocation strategies, highlighting the ongoing trend where value and large-cap stocks consistently outshine their growth counterparts amidst a shifting economic landscape. As international currencies and commodities felt mild fluctuations, overall market sentiment reflected a cautious optimism regarding upcoming economic events, particularly in light of the scheduled CEWC and anticipated fiscal adjustments.
