China stocks fall amid ongoing deflation and offshore asset rush
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Chinese equities fell on Thursday as official data revealed ongoing deflationary pressures, casting doubt on the effectiveness of recent government stimulus measures aimed at boosting domestic consumption. Investors increasingly shifted towards offshore assets, reflecting weak confidence in local markets, while Hong Kong stocks closed at a one-month low.
Key market movements
Chinese indices
The CSI300 Index dropped 0.3%, while the Shanghai Composite Index fell 0.6%.
Hong Kong’s Hang Seng Index (HSI) declined 0.2%, hitting its lowest level in a month.
Consumer prices and government stimulus
Consumer prices in China showed minimal growth in 2024, while factory-gate prices continued their two-year decline.
In response, the government expanded its consumer trade-in scheme, adding more home appliances to the list of eligible products to stimulate demand.
Despite this effort, consumer stocks had a muted reaction, with sentiment weighed down by the continued property sector downturn.
Expert opinions
Zhiwei Zhang, President of Pinpoint Asset Management, highlighted the persistent deflationary pressures and noted that the property sector remains a major drag on consumer sentiment.
Goldman Sachs acknowledged the expanded policy easing measures but emphasized that fiscal policy execution will be critical to driving equity gains in 2025.
Flight to offshore assets
Domestic investors accelerated their pursuit of overseas investments through channels such as QDII and Mutual Recognition of Funds (MRF), signaling declining confidence in local markets. This shift prompted fund managers to issue risk warnings and suspend subscriptions for certain funds.
Tech and defense stocks gain amid geopolitical tensions
While broader markets struggled, tech stocks outperformed as investors renewed interest in chip-making and information security stocks amid heightened geopolitical tensions.
Defense and rare earth stocks also advanced, with the CSI931066 Index and 930598 Index gaining traction.
Hong Kong tech sector
Hong Kong’s HSTECH Index rose, supported by Tencent’s stock buyback, which helped it rebound from a four-month low. This came after Tencent was added to the U.S. Defense Department’s list of companies allegedly linked to China’s military.
Outlook
China's markets face headwinds from weak domestic consumption and deflationary pressures, but tech and defense sectors could offer resilience amid geopolitical developments. The effectiveness of government measures, particularly fiscal policies, will be crucial to stabilizing sentiment and supporting equities in 2025.
Conclusion
China’s equities are navigating a challenging environment as deflationary pressures persist and consumer sentiment remains fragile. While tech and defense stocks provide some optimism, broader market recovery hinges on effective policy implementation and restoring investor confidence. Investors should remain cautious, monitoring policy updates and geopolitical developments for market direction.
Key market movements
Chinese indices
The CSI300 Index dropped 0.3%, while the Shanghai Composite Index fell 0.6%.
Hong Kong’s Hang Seng Index (HSI) declined 0.2%, hitting its lowest level in a month.
Consumer prices and government stimulus
Consumer prices in China showed minimal growth in 2024, while factory-gate prices continued their two-year decline.
In response, the government expanded its consumer trade-in scheme, adding more home appliances to the list of eligible products to stimulate demand.
Despite this effort, consumer stocks had a muted reaction, with sentiment weighed down by the continued property sector downturn.
Expert opinions
Zhiwei Zhang, President of Pinpoint Asset Management, highlighted the persistent deflationary pressures and noted that the property sector remains a major drag on consumer sentiment.
Goldman Sachs acknowledged the expanded policy easing measures but emphasized that fiscal policy execution will be critical to driving equity gains in 2025.
Flight to offshore assets
Domestic investors accelerated their pursuit of overseas investments through channels such as QDII and Mutual Recognition of Funds (MRF), signaling declining confidence in local markets. This shift prompted fund managers to issue risk warnings and suspend subscriptions for certain funds.
Tech and defense stocks gain amid geopolitical tensions
While broader markets struggled, tech stocks outperformed as investors renewed interest in chip-making and information security stocks amid heightened geopolitical tensions.
Defense and rare earth stocks also advanced, with the CSI931066 Index and 930598 Index gaining traction.
Hong Kong tech sector
Hong Kong’s HSTECH Index rose, supported by Tencent’s stock buyback, which helped it rebound from a four-month low. This came after Tencent was added to the U.S. Defense Department’s list of companies allegedly linked to China’s military.
Outlook
China's markets face headwinds from weak domestic consumption and deflationary pressures, but tech and defense sectors could offer resilience amid geopolitical developments. The effectiveness of government measures, particularly fiscal policies, will be crucial to stabilizing sentiment and supporting equities in 2025.
Conclusion
China’s equities are navigating a challenging environment as deflationary pressures persist and consumer sentiment remains fragile. While tech and defense stocks provide some optimism, broader market recovery hinges on effective policy implementation and restoring investor confidence. Investors should remain cautious, monitoring policy updates and geopolitical developments for market direction.