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Hong Kong Stocks Drop as Stimulus Rally Fades; Japan’s Nikkei Leads Gains Across Asia

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Hong Kong’s stock market tumbled on Thursday, with the Hang Seng index falling by 3% after a brief stimulus-fueled rally. This comes after the index surged over 6% on Wednesday, marking a 22-month high. The sudden downturn was driven by significant declines in the property and tech sectors, with the Hang Seng Mainland Properties Index dropping over 10%, led by Longfor Group Holdings and New World Development, which plunged 12.8% and 10%, respectively. The Hang Seng Tech Index also suffered a 6% loss.

While mainland Chinese markets remain closed until October 8 for holidays, investors are questioning the long-term impact of recent stimulus measures announced by Chinese authorities. Analysts, like Nomura’s chief China economist Ting Lu, urge caution, suggesting that future fiscal policies might lack clarity and could lead to market uncertainty.

Japan’s Markets Show Strength

Contrary to Hong Kong’s struggles, Japan’s Nikkei 225 surged 2.1%, leading gains across Asia, while the Topix rose 1.3%. Japan’s market gains were bolstered by a weakening yen, which hit 147.15 against the U.S. dollar, marking its largest single-day decline since June 2022.

Japan’s newly-appointed Prime Minister Shigeru Ishiba assured reporters that the current economic environment does not support an interest rate hike, following his meeting with Bank of Japan Governor Kazuo Ueda. These comments helped boost investor sentiment, further driving market performance.

Mixed Economic Data from Australia

Elsewhere, Australia’s S&P/ASX 200 index increased by 0.25% despite some mixed economic signals. The country’s Judo Bank Composite PMI for September dipped to 49.6 from 51.7 in August, signaling a contraction in private sector activity. Meanwhile, the Australian Bureau of Statistics reported a trade surplus of AU$5.64 billion for August, surpassing estimates but reflecting a slight decline from July’s AU$6.01 billion.

Other Key Updates

  • Japan: The au Jibun Bank Composite PMI for September stood at 52.0, reflecting slower growth in the private sector compared to August’s 52.9. The service sector PMI also showed softer expansion, at 53.1 in September versus 53.7 in August.
  • South Korea and Taiwan: South Korea’s markets were closed for National Foundation Day, and Taiwan’s markets remained shut as Typhoon Krathon brought severe weather to the region.
  • Middle East Conflicts: Geopolitical tensions in the Middle East continue to affect market sentiment globally. Israel launched a ground operation into Lebanon, and Iran retaliated with a ballistic missile strike following the death of Hezbollah leader Hassan Nasrallah.

U.S. Market Update

U.S. markets were relatively flat on Wednesday as investors weighed the risks of escalating Middle East conflicts. The S&P 500 inched up by 0.01% to 5,709.54, while the Dow Jones Industrial Average gained 39 points to close at 42,196.52. The Nasdaq Composite saw a modest rise of 0.08%, closing at 17,925.12.

 

Asia-Pacific Markets Mostly Rise as Investors Weigh China Stimulus Measures

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Asia-Pacific markets saw mixed performances on Wednesday, with Hong Kong’s Hang Seng Index extending its gains by 2.2%, driven by investor enthusiasm for China’s newly announced stimulus measures. The Hang Seng rally was supported by strong performances in the energy and basic materials sectors, with the Hang Seng Mainland Properties Index rising 3.6%.

Chinese markets have been reacting positively to the People’s Bank of China’s (PBOC) recent economic support measures. On Tuesday, the Hang Seng Index experienced its best day in seven months, while mainland China’s CSI 300 Index saw its largest one-day gain in over four years. By Wednesday, the CSI 300 continued its upward trend, rising by 1.73%.

The PBOC announced another rate cut, reducing the medium-term lending facility (MLF) rate from 2.3% to 2%. This marked the second rate cut in three months, following a previous reduction from 2.5% to 2.3% in July. In response, the offshore yuan briefly strengthened to 6.995 against the U.S. dollar, breaking the 7.00 level for the first time since May 2023.

Investors are also closely monitoring Australia’s inflation data. The country’s consumer price index rose by 2.7% year-on-year in August, in line with economists’ expectations, and easing from July’s 3.5% increase. Australia’s S&P/ASX 200 Index edged up slightly, recovering from two days of losses.

Elsewhere in the region, Japan’s Nikkei 225 rose 0.32%, while the broader Topix Index gained 0.11%, reversing earlier losses. South Korea’s Kospi was up 0.4%, with the Kosdaq rising 0.43%. South Korea also unveiled its new “Korea Value Up Index,” set to start trading next week. The index will feature 100 companies, with IT and industrial stocks making up over 40%.

In the U.S., markets also had a positive day on Tuesday. The S&P 500 gained 0.25%, closing at a record 5,732.93, while the Dow Jones Industrial Average rose 0.2%, reaching a new high of 42,208.22. The Nasdaq Composite added 0.56%, with Nvidia leading the charge, climbing nearly 4%. This came after a regulatory filing indicated that Nvidia CEO Jensen Huang had concluded his recent stock sales.

Chinese Yuan Reaches 16-Month High Against US Dollar Amid PBOC Stimulus Measures

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China’s yuan surged to its highest level in over 16 months on Wednesday, boosted by a series of stimulus measures introduced by the People’s Bank of China (PBOC) to bolster the slowing economy. The offshore yuan briefly appreciated to 6.9946 per dollar, a level not seen since May 2023. Similarly, the onshore yuan traded at 7.0319 against the greenback, marking its strongest performance since last May.

While the yuan’s rise is seen as a positive outcome of the PBOC’s policies, analysts caution that a stronger currency could hurt China’s export sector. Wei Liang Chang, FX and credit strategist at DBS, warned that policymakers must be careful not to allow the renminbi’s appreciation to weigh on the fragile economy. “Weak growth and low inflation in China should put pressure on the RMB going forward,” noted Edmund Goh, head of China fixed income at abrdn.

Ben Emons, founder of Fed Watch Advisors, added that rapid yuan strengthening could add deflationary pressure to China’s exports, which are already under strain. Unlike the U.S. dollar or Japanese yen, the Chinese yuan operates within a controlled exchange rate system. Onshore yuan trades within a 2% range around the midpoint set by the PBOC, while offshore yuan—traded mainly in Hong Kong, Singapore, and New York—faces fewer restrictions, allowing for greater market influence.

Despite the upward momentum, some experts expect the offshore yuan (USDCNH) to dip below 7.0 in the coming months. Zerlina Zeng, head of Asia Credit Strategy at CreditSights, predicts that China’s pro-growth stance and potential easing from the Federal Reserve could lead to further yuan appreciation.

Tuesday’s announcement by the PBOC included key moves such as cutting the reserve requirement ratio (RRR) by 50 basis points and lowering the 7-day repo rate by 0.2 percentage points. PBOC Governor Pan Gongsheng described these actions as necessary to alleviate the “clogged” monetary transmission channel, hindered by the property sector’s drag on bank balance sheets and a resulting “crisis” in consumer confidence.

Following the central bank’s stimulus, China’s bond market saw increased demand, with 10-year and 30-year bond yields hitting record lows. Stronger bond demand generally strengthens a country’s currency, and Chinese bonds rallied accordingly. Yields on 10-year bonds rose by 5 basis points to 2.074%, while 30-year bond yields reached 2.182%.

Chinese equities also responded favorably. The Hang Seng Index in Hong Kong posted its best performance in seven months, while the CSI 300 Index on the mainland saw its largest one-day gain in over four years.