Chinese shares soared upon reopening after a weeklong holiday, riding the wave of a stock rally sparked by recent stimulus measures. The benchmark CSI 300 index surged by as much as 11% at the start of trading. In contrast, Asian equities broadly declined, with the yen appreciating against other currencies. Japan, South Korea, and Hong Kong saw stock prices drop following a tech selloff on Wall Street, geopolitical concerns, and expectations for a less aggressive rate cut by the Federal Reserve. The MSCI Asia-Pacific share index experienced its most significant drop in a month.
As investors eagerly await a briefing from the nation’s top economic planner for insights on potential new policy announcements, the recent stimulus measures have already sent Chinese shares soaring. Economist Jia Kang estimates that Beijing’s fiscal initiatives could unlock between 4 trillion yuan ($570 billion) and 10 trillion yuan in stimulus.
“There is certainly substantial support for the market,” Kerry Craig, global market strategist at JPMorgan Asset Management, remarked on Bloomberg TV. However, he cautioned that disappointment could arise if the expected fiscal package fails to meet market expectations.
While mainland equities rallied, Chinese shares in Hong Kong experienced a sharp decline, falling as much as 6.8%, marking the most substantial intraday drop in nearly two years. Marvin Chen, a strategist at Bloomberg Intelligence, noted a convergence in markets, suggesting that investors are shifting funds from Hong Kong to mainland China, benefiting the latter.
Nevertheless, skepticism about the sustainability of this rally persists among several investors. Firms such as Invesco Ltd., JPMorgan Asset Management, HSBC Global Private Banking and Wealth, and Nomura Holdings Inc. are cautious, waiting for the Chinese government to substantiate its stimulus commitments with tangible funding.
Morgan Stanley identified key risks that investors should monitor during the current stock market rally, including the overheating of the A-share market and the effectiveness of the government’s recent policy announcements.
Lorraine Tan, director of Asia Equity Research at Morningstar, expressed optimism about forthcoming policy news that could bolster share prices but advised a selective approach for investors seeking to capitalize on the uptick.
In the U.S., the S&P 500 fell 1% on Monday after a four-week winning streak. Alphabet Inc. dropped 2.4% after a judge ruled that the company must lift restrictions hindering developers from creating competing marketplaces to its Google Play Store. Brent crude oil prices rose above $80 a barrel amid escalating tensions in the Middle East. Following strong jobs data released on Friday, Treasury yields continued to rise, with the 10-year yield exceeding 4%.
Chris Larkin at E*Trade from Morgan Stanley noted, “Friday’s robust jobs report likely eliminated any chance of a 50-basis-point rate cut in November and has sparked discussions about the Fed maintaining rates if economic data remains strong.” He also pointed out that geopolitical concerns cannot be overlooked.
The ongoing crisis in the Middle East has left investors on edge, with renewed fighting across multiple fronts. The Israel Defense Forces reported intercepting a barrage of rockets aimed at Tel Aviv from Hamas and other Iran-backed groups. Brent crude prices surged to their highest level since August amid speculation of a potential Israeli attack on Iranian oil facilities. West Texas Intermediate crude also saw early gains.
Dave Sekera at Morningstar warned that any further escalation in geopolitical tensions could trigger a risk-off trade, leading growth stocks to underperform value stocks. “Typically, in a risk-off scenario, we see a rotation into defensive stocks, but I would advise caution for investors today, as some defensive sectors appear overvalued. Unlike typical risk-off situations, oil stocks may rise,” he stated.
Excluding energy shares, all major sectors of the S&P 500 experienced declines on Monday, with the “Magnificent Seven” megacap index dropping by 1.9%. Amazon.com Inc. fell 3.1% following a downgrade from Wells Fargo Securities, while Apple Inc. slipped 2.3% amid concerns about overly optimistic investor expectations for its latest iPhone models. Conversely, Nvidia Corp. posted gains, and Samsung Electronics Co. reported preliminary operating profits that fell short of estimates.
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