Week in Review

In the first full trading week of 2025, Asian equities faced a rocky path, with most markets showing declines. However, it was a different story for Korea and Mainland China, which recorded modest gains, while Pakistan and Hong Kong lagged behind.

Recent data revealed that the December Caixin Services PMI rose to 52.2, surpassing November's figure of 51.5 and expectations of 51.4, signaling a rebound in service sector activities.

In a significant move, the U.S. Department of Defense (DOD) added major Chinese firms CATL and Tencent to its blacklist. Nonetheless, without an executive order in place, there are no immediate investment restrictions. Both companies refuted the DOD's decision as a 'mistake' and are actively seeking ways to reverse this classification.

Notably, this week saw Mainland investors making a substantial net purchase of over $6 billion in Hong Kong via the Southbound Stock Connect. This trend illustrates an increased confidence in offshore stocks, particularly in a week where the market overall faced downward pressure.

Key News

Despite fluctuations in Asian equities, the performance varied, with Pakistan and Thailand showing resilience while both Mainland China and Singapore weakened. It’s worth noting that U.S. markets were closed recently in honor of former President Jimmy Carter.

A historic gesture is on the horizon as President Xi is poised to send a high-level delegate to the inauguration of Donald Trump. This invite marks a substantial diplomatic overture, indicating a potential thaw in U.S.-China relations after a period of stringent negotiations.

On the domestic front, the People’s Bank of China (PBOC) opted to halt its bond purchases as yields on China’s ten-year treasury reached unprecedented lows. This dynamic enhances the appeal of stocks, especially since the average dividend yield for Mainland stocks remains above 2%, compared to a much lower treasury yield. However, the central bank must balance stimulating the stock market while managing the depreciation of the Chinese Yuan (CNY), which found temporary relief amid this pause.

With investors significantly boosting their purchases of Hong Kong listings, the $6 billion net inflow this week echoes a robust belief in bargain opportunities, particularly as consumer stocks have recently struggled. Last year, Mainland investors injected over $100 billion into Hong Kong stocks—more than double the previous year's total.

Consumer stocks, in particular, have been in a slump despite new initiatives to expand the consumer trade-in subsidy program, confirmed this week by the National Development and Reform Commission (NDRC).

In an exciting development, toy manufacturer Bloks Group soared nearly 40% during its Hong Kong IPO, hinting at a potentially vibrant IPO market in 2025.

Market Performance Overview

The Hang Seng and Hang Seng Tech indexes experienced declines of 0.92% and 1.18% respectively, with trading volume rising by 12%. Notably, 14% of turnover constituted short-selling activity.

Overall, 66 stocks advanced, while a staggering 439 stocks saw declines. Mainland investors also registered net purchases worth $594 million in Hong Kong-listed stocks overnight via Southbound Stock Connect, indicative of heightened market activity.

The Shanghai, Shenzhen, and STAR Board indexes closed lower, with declines of 1.33%, 2.22%, and 1.13%, respectively, as the value factor and large cap stocks fell less dramatically than smaller growth stocks.

In the commodity space, copper prices saw a slight drop of 0.09%, while steel prices rose by 1.00%. The foreign exchange markets also witnessed the CNY and Asia Dollar Index decline against the U.S. dollar, amidst a backdrop of Treasury bond rallies.

As we move deeper into 2025, the outlook for the Chinese markets remains closely tied to macroeconomic indicators and investor sentiment, particularly in the wake of changing geopolitical dynamics.

Stay Tuned!

Don’t miss our next article, where we delve deeper into the implications of Trump’s newly minted relationship with China!