Asian equity markets displayed a predominantly upward trend on Christmas Eve, albeit with subdued trading volumes and limited news flow. Hong Kong and Mainland China emerged as the standout performers, while Australia and the Philippines remained closed for the holiday, and Hong Kong and Singapore operated on half-day schedules. A significant development emerged after the Hong Kong market closed, with Reuters reporting that China plans to issue RMB 3 trillion in special purpose bonds, exceeding market expectations of RMB 1 trillion. These bonds are earmarked for bolstering consumption through subsidy programs, a move that resonates well with foreign investors seeking signs of further economic stimulus in China. The timing of the news raises questions about the factors driving the Hang Seng Index’s surge above the 20,000 mark, particularly the robust performance of growth stocks on strong half-day volumes.
Mainland Chinese media extensively covered the conclusion of the National Financial Work Conference (NFWC) and a subsequent Ministry of Finance (MoF) statement emphasizing the need for more proactive fiscal policies. The MoF outlined six key focus areas for 2025, notably prioritizing support for domestic demand expansion. This emphasis underscores the government’s commitment to boosting consumption, with measures such as expanding pensions and medical insurance highlighted. These initiatives address the underlying drivers of China’s high saving rate, traditionally attributed to the lack of a comprehensive social safety net. The remaining five focus areas encompass support for modern industrial system construction, improvement of people’s livelihoods, integrated urban-rural development, ecological civilization construction, and high-level opening up. The alignment between the Reuters report on special purpose bonds and the NFWC’s emphasis on domestic demand expansion suggests a coordinated policy approach, potentially explaining Hong Kong’s market rally, although definitive confirmation remains elusive. Strong Southbound Stock Connect flows from Mainland investors further contributed to Hong Kong’s positive performance.
Despite the overall positive sentiment, individual stock performance varied. Alibaba benefited from the consumption-focused narrative, gaining 2.65%, while Tencent and Meituan experienced marginal declines. Growth stocks, however, generally fared well in both markets. Intriguingly, Weimob surged by 31% on a broker upgrade, seemingly unaffected by Tencent executive Zhang Jun’s dismissal of rumors regarding WeChat gifting. High-yielding mega-capitalization stocks like banks, energy, and insurance companies also performed strongly, reflecting the relative attractiveness of their dividend yields compared to prevailing government bond yields. The broad-based nature of the rally extended to small-cap stocks, suggesting widespread market optimism.
Further analysis of the market dynamics reveals several intriguing observations. While the Hang Seng and Hang Seng Tech indices closed higher, overall volume was down compared to the previous day. Growth and small-cap stocks outperformed value and large-cap stocks, indicating a risk-on appetite among investors. Sectoral performance was mixed, with technology, real estate, and energy leading the gains, while materials declined. Southbound Stock Connect flows revealed continued interest from Mainland investors, with notable buying activity in stocks like ICBC, Xiaomi, and Alibaba. Conversely, Meituan saw moderate net selling.
Meanwhile, Mainland Chinese markets also exhibited positive momentum, with the Shanghai, Shenzhen, and STAR Board indices all closing higher. Trading volume, however, was down from the previous day, though still above the one-year average. Similar to Hong Kong, growth and small-cap stocks outperformed their value and large-cap counterparts. All sectors closed in positive territory, with consumer discretionary, financials, and industrials leading the charge. Northbound Stock Connect volumes remained near average levels. Currency movements were minimal, with the CNY and Asian dollar index slightly weaker against the US dollar. Treasury bonds experienced a decline, while commodity markets saw mixed performance, with copper falling and steel rising.
Beyond the immediate market analysis, a broader perspective on US-China relations is also pertinent. Insights from incoming US Treasury Secretary Scott Bessent, gleaned from podcast interviews, provide valuable context. Bessent’s extensive experience, including periods with prominent investors like Jim Rogers, Jim Chanos, George Soros, and Stanley Druckenmiller, speaks to his deep understanding of financial markets. While tariffs were not explicitly discussed in the interviews, his free-market orientation suggests a potential divergence from the previous administration’s trade policies. Bessent’s skepticism regarding the Chinese government’s ability to navigate economic challenges, particularly given President Xi’s perceived focus on social measures over economic growth, warrants consideration. However, recent policy shifts in China, including increased stimulus measures, suggest a renewed emphasis on economic stability and growth.
The apparent disconnect between positive market signals and the generally negative tone of media coverage regarding China also merits attention. Signals such as President Xi’s invitation to Trump’s inauguration, the absence of a TikTok ban, and the removal of outbound investment restrictions from a Congressional bill suggest a potential thawing of US-China relations. This divergence between market sentiment and media narrative underscores the importance of independent analysis and critical evaluation of information. Overall, the Asian markets’ performance suggests cautious optimism, driven by expectations of further stimulus in China and a potential easing of US-China tensions. However, underlying uncertainties regarding the global economic outlook and the trajectory of US-China relations warrant continued monitoring.
