Risk Off Despite Pick Up In Inflation, Consumer Spending

Key News: Mixed Performance in Asian Equities

The Asian equity markets saw a mixed performance overnight, with some countries outperforming while others underperformed. Pakistan and Thailand emerged as the top performers, while Hong Kong and Indonesia struggled the most. China’s markets experienced a pause after a recent rally, as the session lacked a significant catalyst to drive the markets lower. Mainland markets opened flat but later followed Hong Kong’s lead, sliding downward. However, Hong Kong markets attempted a recovery mid-session but ultimately closed near their lows.

Profit-taking was a likely factor contributing to the decline, as popular trades in technology, consumer discretionary, and the electric vehicle ecosystem all saw losses. Additionally, mainland Chinese investors were net sellers of Hong Kong-listed stocks and ETFs, offloading over $1 billion worth of holdings. This selling pressure further weighed on the markets.

Market Movers: Auto and Shipping Sectors See Contrasting Trends

The automotive sector faced broad declines due to growing competition concerns. BYD, China’s largest carmaker, announced plans to roll out new in-house assisted and smart driving features. This move is seen as a potential threat to competitors focused solely on autonomous driving, such as Baidu. Investors are bracing for heightened competition in the EV space.

On the other hand, the shipping sector saw gains following positive data. Container volume at Shanghai’s port reached a record high in January, signaling robust trade activity. This uptick in shipping volumes provided a much-needed boost to the sector.

Policy Impact and Economic Indicators: Signs of Recovery and Growth

Premier Li’s recent remarks on CCTV highlighted the government’s focus on increasing foreign investment and raising wages to stimulate domestic consumption. These measures are expected to bolster the economy and provide relief to consumers. Additionally, the Chinese CPI rose to 0.5% in January, up from 0.1% in December, marking the fastest-paced inflation reading in five months. This uptick is attributed to healthy spending during the Chinese Lunar New Year, as well as the ongoing implementation of trade-in consumption subsidy policies.

The government’s subsidy programs are already showing positive results, with over 20 million applications for electronics trade-ins submitted, referencing purchases of over 25 million units. These initiatives are helping to inject life into the real economy and drive consumer activity.

Sector Spotlight: Healthcare and Technology See Shifts

The healthcare sector has been gaining momentum recently, driven by the end of a long-running anti-graft campaign in hospital procurement. This development has likely eased pressures on healthcare companies and created a more favorable operating environment.

In the technology space, DeepSeek, a prominent player in artificial intelligence, is reportedly building a team to explore highly theoretical “Artificial General Intelligence” (AGI). This move underscores the growing emphasis on cutting-edge technology in China and the potential for innovation in the AI sector.

Meanwhile, Illumina, a U.S.-based genomic sequencing company with significant revenues in China, was added to China’s “Unreliable Entities” list. The company has expressed its commitment to engaging constructively with Chinese authorities and adhering to all applicable laws and regulations.

Global Implications: Trade and Investment Continue to Evolve

The addition of Illumina to China’s “Unreliable Entities” list highlights the ongoing complexities in U.S.-China trade relations. This move could have implications for other foreign companies operating in China, as they navigate the regulatory landscape.

In another development, Wuxi Biologics, a contract research organization, reported that new contracts are at an all-time high. This positive outlook was shared during the JP Morgan Annual Conference last month, suggesting resilience in the biotech sector despite challenges like the U.S. Biosecure Act.

The Hang Seng and Hang Seng Tech indexes both closed lower, reflecting broader market sentiment. Meanwhile, mainland investors continued to offload Hong Kong-listed stocks, contributing to the decline in market volumes.

Economic Indicators and Upcoming Events: What’s Next?

Exchange rates remained stable, with the CNY per USD holding at 7.31 and the CNY per EUR at 7.55. Yields on 10-Year Government Bonds and China Development Bank Bonds also saw little movement, maintaining their positions at 1.63% and 1.62%, respectively.

Commodity prices, however, saw a decline, with copper and steel prices dropping by 0.84% and 0.91%, respectively. These fluctuations highlight the ongoing volatility in global markets and the impact of economic policies on commodity demand.

Looking ahead, a live webinar titled “A DeepSeek Driven China Internet Rerating?” is scheduled for Thursday, February 20th, at 11 am EST. This event promises to delve into the potential re-rating of China’s internet sector, driven by advancements in AI and technology.

Lastly, a new article titled “2025 China Outlook: A Recipe For Re-Rating” has been published, offering insights into China’s economic trajectory and the factors that could drive market re-rating in the coming years. These resources provide valuable perspectives for investors and analysts looking to navigate the evolving landscape of China’s economy and financial markets.