Asian equities, with the exception of Taiwan, the Philippines, and South Korea, experienced a difficult night as the US dollar strengthened against Asian currencies. Hong Kong saw a decline, led by profit-taking on growth stocks that had performed well during the recent rally. Reports indicating that the US would prevent Huawei from purchasing chips from Nvidia and Qualcomm weighed on Chinese semiconductor stocks, though it could be seen as a positive for other companies in the sector. The electric vehicle ecosystem also suffered a setback as April’s preliminary retail car sales were lower than expected, declining by 2% year-over-year.
The China Securities Journal highlighted the possibility of another cut to banks’ reserve requirement ratio and additional interest rate cuts, though the latter may not happen until the Fed takes similar action. Real estate stocks in Hong Kong and mainland China faced profit-taking after a recent bounce, leading to declines in both markets. Mainland investors took advantage of the dip in Hong Kong stocks through Southbound Stock Connect with a net buying of $229 million. This was in contrast to foreign investors selling mainland stocks worth -$559 million. The skepticism around the China rally following a decline in February is understandable, but rebuilding investor trust and confidence may ultimately lead to a continued bull market.
Despite the skepticism, the rally in China since January has been impressive, with significant gains in various indices compared to other major markets. Chinese companies engaged in stock buybacks and dividends, reminiscent of similar strategies that helped end Japan’s long bear market. China’s economy is slowly rebounding, with GDP growth in Q1 surpassing expectations. Policy amplification is expected to continue with the upcoming Third Plenum, while financial results from major internet companies are also awaited. The rally may benefit from positive conditions and ongoing reforms, though some caution is advised.
In Hong Kong, the Hang Seng and Hang Seng Tech indexes fell amidst increased trading volume, with most stocks declining. Technology and energy sectors saw gains, while real estate and consumer sectors faced losses. Southbound Stock Connect volumes were high, with mainland investors buying Hong Kong-listed stocks and ETFs. In mainland China, the Shanghai, Shenzhen, and STAR Board indexes also fell, with energy being the only positive sector. Real estate and technology sectors faced declines, with foreign investors selling mainland stocks. Currencies like CNY and the Asia Dollar Index weakened against the US dollar, while Treasury bonds were sold and commodities like copper and steel also saw decreases.
Overall, the market outlook remains uncertain, with various factors affecting Asian equities. Investors may need to consider the implications of the strengthening US dollar, regulatory developments in the tech and semiconductor sectors, and ongoing reforms in the Chinese economy. The upcoming Third Plenum and financial results from major companies in the region could provide further insight into the direction of the markets. Despite the challenges and skepticism, opportunities for growth and investment may still exist, particularly in companies that are adapting to changing market conditions and policy reforms.
