Asian stock markets experienced a decline due to the drop in Chinese tech companies, prompting investors to modify their expectations regarding additional stimulus from China. This decline followed a meeting on Friday, which revealed limited details about a potential package.
The equities gauge for the region recorded a 0.8% fall, with mainland China, Hong Kong, Japan, and South Korea all witnessing declines. Notably, Australian stocks bucked the trend and rose by approximately 0.6%. It’s worth mentioning that US stock and bond markets remained closed on Monday due to a holiday.
Reports on the State Council meeting in China, chaired by Premier Li Qiang, lacked significant information about the timing and potential stimulus measures. Instead, the media emphasized the necessity for China to adopt forceful and timely measures to support economic recovery.
The absence of concrete evidence for support seemed to unsettle investors who had previously boosted Chinese equities with hopes of a comprehensive package to bolster the struggling property market and infrastructure.
Contrary to these expectations, Goldman Sachs Group Inc. revised its Chinese growth forecast, highlighting the limited options available for stimulus. The bank’s economists projected that support for the property market would likely be moderate and focused.
Steven Leung, executive director of UOB Kay Hian in Hong Kong, attributed the selloff in Chinese stocks on Monday to exaggerated government policy expectations.
Companies like Alibaba Group Holding Ltd, Meituan, and Baidu Inc., which are Chinese tech platforms, faced significant declines of around 4%. As a result, the Hang Seng Tech index plummeted by up to 2.7%.
The offshore yuan weakened, while the Australian dollar initially showed gains but eventually declined alongside the New Zealand dollar. The yen remained flat, briefly reversing its early decline and reaching levels not seen since November. Additionally, the dollar index rebounded following its worst week since January.
Economists anticipate that China will decrease its one and five-year loan prime rates, building upon the previous reduction in a key lending rate.
During an interview with Bloomberg Television, Nupur Gupta, a portfolio manager at Eastspring Investments, expressed that these minor adjustments of 10 basis points here and there are insufficient to revive the Chinese economy. However, she acknowledged that they do convey a positive signal to the market.
The visit of US Secretary of State Antony Blinken to Beijing, where he engaged in “candid” talks with his Chinese counterpart, generated increased attention towards China on Monday.
Chipmaker stocks, including Samsung and SK Hynix, encountered pressure following the decline of US-traded Micron Technologies on Friday. Micron Technologies issued a warning that roughly half of its sales associated with clients headquartered in China might be impacted by a Chinese cybersecurity investigation.
Australian 10-year bond yields dropped by four basis points, while New Zealand’s yields slipped six basis points after Treasury yields rose on Friday.
This week, Fed Chair Jerome Powell will present his semi-annual report to Congress, accompanied by speeches from Federal Reserve Bank of St. Louis President James Bullard and counterparts in New York and Chicago.
Although the Fed chose to maintain unchanged interest rates last week, they cautioned that further tightening is likely in the future. Historically, pausing rate hikes for three months after a series of increases has stimulated stock prices.
Loreen Gilbert, CEO of Wealthwise Financial, expressed optimism during her Bloomberg Television interview, implying the possibility of avoiding a recession. She added that the markets are already anticipating another rate hike, but their baseline projection suggests that it may not materialize.
Other notable events in the upcoming week encompass policy meetings by the central banks of Turkey, the UK, and Switzerland.
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