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China Equity Issuance Doubles as Tech Race Draws Global Investors

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China’s stock markets are seeing renewed interest from global investors, with equity issuance in the first quarter of 2025 nearly doubling compared to the previous year. The surge, totaling $16.8 billion, reflects a shift in investor sentiment as government scrutiny of technology firms eases and emerging tech players like AI software developer DeepSeek gain traction.

The first-quarter equity issuance represents a 119% increase compared to the same period in 2024. Investment activity is being driven by a re-rating of China’s stock market, with investors shifting their focus from caution to seeking opportunities. Despite ongoing risks, especially regarding U.S.-China tensions, China’s valuation gap compared to other global markets is becoming more apparent, attracting long-term investors.

In Hong Kong, the Hang Seng Index has surged 21% this year, outperforming international markets. The MSCI China index is also trading at lower price-to-earnings ratios compared to U.S. and other global markets, making it an attractive option for global investors.

Key to this shift in investor outlook is the easing of government restrictions on China’s tech sector, highlighted by a summit led by President Xi Jinping with top tech leaders. The rise of DeepSeek, an AI company, has further fueled optimism in China’s tech market. The Chinese government’s support for private tech companies, especially in AI, quantum computing, and semiconductors, is being seen as a positive development for foreign investors.

Chinese companies, including those in the AI sector, are helping to drive IPO activity in Hong Kong. With continued strong support from mainland and Hong Kong regulators, the market’s recent surge in activity is expected to remain sustainable.

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.

 

Hong Kong Stocks Surge Over 5% for Sixth Consecutive Day Amid Stimulus Optimism

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Hong Kong’s Hang Seng index surged more than 5% on Wednesday, reaching a 22-month high as optimism regarding Beijing’s latest stimulus measures continued to drive market momentum. This marks the sixth consecutive day of gains, largely fueled by significant advancements in the property sector.

Returning from a public holiday on Tuesday, traders witnessed property developers like China Vanke, Longfor Group, and Logan Group skyrocketing by over 40%, 32%, and 31%, respectively. This rally came after major cities in mainland China implemented easing measures aimed at boosting homebuyer confidence. Additionally, Chinese tech giants including Meituan, Baidu, and JD.com saw increases of over 10%.

With mainland Chinese markets closed for the Golden Week holiday, traders reflected on a strong Monday where Chinese stocks enjoyed their best performance in 16 years, following the announcement of various stimulus initiatives from Beijing. These measures included interest rate cuts, reduced reserve requirements for banks, and increased liquidity for investors.

However, James Sullivan of JPMorgan expressed caution regarding the sustainability of this market rally, pointing out that current stimulus measures seem to focus more on supply and investment rather than directly boosting consumer demand. “The million-dollar question in China right now is, does [the stimulus] only flow into the supply side of the equation, or does it ultimately flow through into consumer demand?” he remarked.

Mixed Performance Across Asia-Pacific Markets Despite Hong Kong’s rally, the broader Asia-Pacific markets exhibited mixed results on Wednesday. Australia’s S&P/ASX 200 dipped 0.13% to close at 8,198.2, while South Korea’s Kospi fell 1.22% to 2,561.69. Japan’s Nikkei 225 decreased by 2.18% to end at 37,808.76, with the Topix dropping 1.44% to 2,651.96.

The recent political developments in Japan, with Shigeru Ishiba taking over as Prime Minister, may influence the Bank of Japan’s monetary policies. Although Ishiba’s leadership might provide room for further interest rate hikes, newly appointed economy minister Ryosei Akazawa emphasized the need for cautious evaluation before making any adjustments.

South Korea Economic Data and Concerns In South Korea, traders were digesting consumer inflation data that indicated a rise of 1.6% in September, which was lower than economists’ expectations of 1.9%. Additionally, factory activity in South Korea contracted at its fastest pace in 15 months in September, highlighting concerns over slowing overseas demand.

Middle East Tensions Impacting Global Markets In U.S. markets, the Dow Jones Industrial Average fell by more than 173 points, while the S&P 500 and Nasdaq Composite declined by 0.93% and 1.53%, respectively, driven by rising tensions in the Middle East. Iran’s missile strikes on Israel and Israel’s ground operations in Lebanon have escalated conflict in the region.

Israeli Prime Minister Benjamin Netanyahu vowed retaliation, asserting that Iran would pay for its actions. Economist Stephen Roach warned that the ongoing conflict could lead to increased oil prices and inflation, prompting the U.S. Federal Reserve to reconsider its accommodative monetary policy amidst rising unemployment.

Investors are closely watching for the upcoming September jobs report, which will provide further insight into the U.S. labor market amid these turbulent conditions.