In the week concluding on December 27, 2023, the Hang Seng Index exhibited a remarkable turnaround, surging by 1.87% after succumbing to losses the previous week. This upward trajectory can be attributed to China’s recent stimulus initiatives, which have invigorated market confidence in both Hong Kong and Mainland China-listed equities. Significantly, the decline in China’s industrial profits was less severe than anticipated—falling 4.7% year-to-date by November, while economists had projected a decline of 5%. This development is encouraging for investors, as it hints at a modicum of stability amidst economic turbulence.
The Hang Seng Tech Index also demonstrated resilience, climbing by 2.12%. Key players in the technology sector, including Baidu and Alibaba, showcased impressive performance with surges of 3.72% and 2.81%, respectively. An increased demand for real estate stocks, bolstered by the broader stimulus measures, further supported the market, with the Hang Seng Mainland Properties Index recording a 1.41% uptick. Overall, the stimulus aimed at nurturing consumer spending appears to be working, albeit within a backdrop of uncertainty regarding potential trade conflicts, particularly concerning the imminent threats posed by former President Trump regarding tariffs.
While gains were noted across various sectors, overarching concerns regarding trade relations, especially between the United States and China, cast a shadow over market optimism. The anticipated tariffs have sparked apprehension about how effective domestic demand measures will be in offsetting potential fallout from a US-China trade standoff.
Iron ore prices continued on a downward trajectory, decreasing by 1.37% over the week, extending existing losses due to concerns about oversupply as well as the impact of US tariff threats. Reports indicate that China’s steel manufacturing sector is experiencing contractions, while iron ore imports are leading to increased inventories. The potential influx of supply from both China and Africa raises alarms regarding further price drops.
Meanwhile, gold recorded a minor loss of 0.06%, settling at $2,621, marking a continuing trend of decreased value over two weeks. In contrast, Australian markets rebounded sharply, with the ASX 200 climbing 2.41%, recovering from a prior week’s decline of 2.76%. The banking and tech sectors fueled this recovery, displaying a strong performance across the board. The anticipation of a possible rate cut by the Reserve Bank of Australia (RBA) in February has driven demand for banking stocks, as lower rates could lead to an enhanced appetite for credit.
Not to be outdone, the Nikkei Index recorded a notable gain of 4.08% during the same period. This increase can be largely attributed to the Bank of Japan’s (BoJ) reluctance to signal imminent rate hikes, in concert with a recent less dovish outlook from the Federal Reserve. The USD/JPY pair advanced by 0.92%, reaching 157.802, sustaining a three-week winning streak. Speculation surrounding a potential rate increase from the BoJ in Q1 of 2025 has fueled market sentiments, though the BoJ has hinted at requiring further evaluation of the economic effects from Trump’s policies prior to any decisive actions.
The tech sector in Japan also contributed to the market’s favorable performance, with companies like Tokyo Electron and Softbank Group seeing significant gains. Adding to the market’s upbeat sentiment was the heightened interest around a possible merger between Honda Motor and Nissan Motor Corp., which experienced a staggering 14.94% growth during the week.
As the markets brace for the upcoming week, the release of private sector Purchasing Managers’ Index (PMI) data is set to play a pivotal role in shaping investor sentiment and future market strategies. These figures will provide crucial insights into various economic indicators, including sector demand, labor market health, and pricing trends. Any sign of weakness from key economic players, such as the United States, could compel the Federal Reserve to adopt a more dovish stance, further invigorating demand for high-risk assets.
Continued scrutiny on trade dynamics, coupled with evolving economic conditions in China, is critical as traders seek to navigate this intricate landscape. Understanding these shifting currents will be essential for leveraging potential opportunities within the global market.