Asian Markets Mixed Amid Political Developments and Economic Anticipation
Asian equities presented a mixed picture overnight, influenced by a confluence of political and economic factors. South Korea experienced underperformance following unexpected political developments, while Taiwan and Indonesia displayed stronger performance. The US dollar weakened overnight, while Thailand’s markets remained closed in observance of the King’s birthday. This diverse performance underscores the complex interplay of regional influences and global economic trends impacting Asian markets.
Hong Kong and Mainland China Await Economic Signals
Trading in Hong Kong and Mainland China was subdued, lacking significant catalysts as investors appeared to be in a holding pattern, anticipating policy announcements expected from next week’s China Economic Work Conference (CEWC). Market participants are eager for clarity on economic policies and potential stimulus measures. Further insight is also sought regarding the timing of the Politburo meeting, as any pronouncements from this gathering could significantly influence investor understanding of the future policy trajectory.
A notable trend was the outperformance of slow-growth sectors, reminiscent of the previous day’s market activity. These sectors benefited from higher oil prices driven by OPEC production cuts, with the energy sector leading gains in both Mainland China and Hong Kong. In contrast, growth stocks, typically favored by foreign investors, experienced declines, though not substantial ones. The November Caixin Services PMI indicated continued growth but at a slower pace compared to October, registering 51.5 against expectations of 52.4. It’s important to note that only a small number of economists contributed to this estimate, tempering the significance of any perceived "miss."
US-China Trade Tensions and Corporate Developments
The recent escalation of US-China trade tensions, including warnings from the Chinese government about purchasing US semiconductor chips, contributed to a cautious market sentiment. While not outright bans, these warnings added to the ongoing trade complexities between the two nations. This backdrop also included corporate-specific news impacting market performance. Trip.com witnessed gains amidst reports that Japan plans to waive visa requirements for Chinese tourists, offering a potential boost to travel demand. Conversely, Bilibili’s stock declined on news of CEO stock sales, although the company’s repurchase of a convertible note mitigated concerns about share dilution.
General Motors (GM) faced market scrutiny over a $5 billion writedown of its China business. However, this news was followed by a positive report from the China Passenger Car Association, revealing strong growth in new energy vehicle sales, with November figures up 52% year-over-year. This contrasting data highlighted the complexities of the Chinese automotive market, where traditional automakers face challenges while the electric vehicle sector continues to thrive. It also underscores the divergence in market valuations between US and Chinese auto companies, with GM’s US-listed stock outperforming BYD’s Hong Kong-listed stock despite significantly lower projected revenue growth. This discrepancy reflects the ongoing overweighting of US stocks and underweighting of Chinese stocks by global investors.
Investor Flows and Market Technicals
Market activity showed significant shifts in investor flows, with Mainland investors becoming large net sellers of Hong Kong-listed stocks and ETFs via Southbound Stock Connect. This followed substantial net buying earlier in the week, much of which appeared concentrated in the Hong Kong Tracker ETF. The Mainland market also experienced selling pressure into the close, although ETFs favored by state-backed investors saw increased volume during the downturn. This activity could suggest intervention by these investors, potentially influenced by official pronouncements about market stability.
From a technical analysis perspective, the Shanghai, Shenzhen, Hang Seng, and Hang Seng Tech indexes continued a gradual upward trend, potentially forming a bullish "cup and handle" chart pattern. This technical formation, if confirmed, could suggest further upside potential for these indexes. Within the Hong Kong market, the energy and materials sectors led gains, while healthcare and consumer staples lagged. Southbound Stock Connect volumes were relatively light, with Mainland investors selling Hong Kong-listed stocks and ETFs.
In Mainland China, the Shanghai, Shenzhen, and STAR Board indexes all experienced declines, with trading volumes also decreasing. The value factor and large capitalization stocks performed relatively better than growth-oriented and smaller companies. The energy and utilities sectors showed strength, while real estate experienced a notable decline. Northbound Stock Connect volumes were near average levels. Currency movements saw both the CNY and the Asia Dollar Index gaining against the US dollar, while Treasury bonds rallied. Commodity markets witnessed gains in copper but declines in steel. These diverse market movements reflect a complex interplay of factors, including economic data, investor sentiment, and ongoing geopolitical developments.
