Asian Markets Navigate Holiday-Thinned Trading Amid Positive Catalysts and Geopolitical Undercurrents
Asian equities experienced a mixed session marked by light trading volumes, as the Philippines observed Rizal Day, a national holiday. Hong Kong and Mainland China markets fluctuated throughout the day, exhibiting decent trading activity considering the holiday season. Notably, Southbound Stock Connect witnessed significant northbound flows, with Mainland investors injecting $947 million into Hong Kong-listed stocks and ETFs, representing a substantial 55% of the total turnover. This robust inflow brought the cumulative net buying via Southbound Stock Connect to a remarkable $102 billion in 2024, surpassing the entire year’s total of $40 billion in 2023. This surge in investment activity suggests a continued interest in Hong Kong’s market despite ongoing global uncertainties.
Despite several positive developments, market sentiment appeared subdued, suggesting that many investors remained on the sidelines awaiting the new year. These developments included President Trump’s request to the Supreme Court to delay the TikTok case, potentially signaling a shift in the US-China tech war narrative. Furthermore, hints of reconciliation between the two superpowers, such as President Trump’s purported invitation to President Xi for his inauguration and the lifting of the outbound China investment ban, seemed to be overshadowed by persistent focus on trade tariffs. This suggests a possible disconnect between market sentiment and underlying geopolitical shifts, with tariffs remaining the dominant narrative despite other potential breakthroughs.
Meanwhile, China’s central bank, the People’s Bank of China (PBOC), indicated room for further monetary easing. Governor Pan Gongsheng pointed to the relatively high reserve requirement ratio (RRR) for banks at 6.6%, compared to international counterparts such as the US with a 0% RRR, suggesting the possibility of further cuts to stimulate lending and economic activity. This aligns with the PBOC’s 2024 Financial Stability Report, which reiterated the commitment to a "moderately loose" monetary policy, echoing the pronouncements from the Central Economic Work Conference (CEWC) and the Politburo. This consistent messaging underscores China’s proactive stance on maintaining economic stability and growth momentum.
The Mainland Chinese market also witnessed a significant event with the successful listing of Air China Cargo, the largest IPO in China to date. The offering raised RMB 3.5 billion, with shares priced at RMB 2.30. The stock surged an impressive +304%, closing at RMB 9.30, indicating strong investor appetite. Concurrently, Hong Kong welcomed three new IPOs, signifying a revitalization of capital markets activity. These developments point to a healthy pipeline of new listings and investor confidence in both Mainland and Hong Kong markets.
The electric vehicle (EV) sector in Hong Kong faced headwinds despite the government’s announcement of a mandate requiring at least 30% of government vehicle purchases to be EVs, with a long-term goal of 100%. Reports of Tesla’s planned Cybertruck launch in China and potential price cuts by BYD might have contributed to the pressure on Hong Kong-listed EV stocks. However, Mainland-listed battery giant CATL bucked the trend, registering a +1.75% gain. This divergence in performance suggests a complex interplay of factors influencing the EV sector, with company-specific developments and competitive dynamics playing a significant role.
Mainland China’s market saw outperformance in mega-cap banks, energy companies, and life insurance providers, while ETFs favored by the "National Team" experienced high trading volumes. Stockbroker stocks, popular among retail investors, also performed well. These sector-specific trends highlight the evolving dynamics within the Mainland market, with both institutional and retail investors contributing to the overall performance. The Hang Seng Index closing above the 20,000 mark further signaled positive momentum. This milestone underscores the resilience of Hong Kong’s market despite ongoing global economic uncertainties.
In a more detailed market breakdown, the Hang Seng and Hang Seng Tech indexes experienced slight declines, while trading volume decreased compared to the previous session. Sector performance was mixed, with Health Care, Industrials, and Utilities leading the gains, while Consumer Discretionary, Real Estate, and Energy lagged. Southbound Stock Connect flows remained robust, indicating continued interest from Mainland investors in Hong Kong-listed stocks. Mainland markets also saw mixed performance, with Energy and Financials outperforming, while Real Estate and Utilities underperformed. Northbound Stock Connect volumes remained near average levels.
The currency and commodity markets saw relatively muted movements. The Chinese Yuan (CNY) held steady against the US dollar, while the Asia Dollar Index posted marginal gains. Treasury bond yields edged higher, copper prices rose slightly, and steel prices experienced a minor decline. These relatively stable currency and commodity movements suggest a cautious market environment as investors await further clarity on global economic trends. Overall, the Asian markets navigated a holiday-thinned trading session with a mix of positive catalysts and ongoing geopolitical undercurrents, as investors await the new year and further clarity on the evolving economic and political landscape.
