Asian stock markets retreated as China’s 5% economic growth met the government’s annual target but failed to ignite widespread optimism. The MSCI Asia Pacific Index experienced losses, though it recovered slightly from earlier lows as investors evaluated the implications of China’s economic data. While China’s CSI 300 index posted gains, markets in South Korea and Japan saw declines. Meanwhile, US equity futures remained largely unchanged.
The pullback in Asia comes after a global risk rally earlier in the week, driven by traders recalibrating expectations for Federal Reserve interest rate cuts following favorable inflation data. China’s GDP grew by 5.4% year-over-year in the fourth quarter, marking the fastest pace in six quarters and exceeding the 5% median forecast by economists.
Charu Chanana, chief investment strategist at Saxo Markets, called the result “a sigh of relief” for Chinese assets, attributing the positive outcome to the impact of 2024 stimulus measures. However, she cautioned that the broader challenges facing China, including structural headwinds and tariff risks, will ultimately shape long-term returns.
The GDP figures indicate that Beijing’s policy shift since September has successfully mitigated the effects of a prolonged property slump and persistent deflation. As a result, further monetary easing and increased public spending are expected in 2025, even as uncertainty grows over the potential return of Donald Trump to the White House.
Compounding the uncertainty, reports surfaced on Friday that Zhu Jiusheng, CEO of China Vanke Co., had been detained by police, with a task force from Shenzhen’s local government taking control of the state-backed developer. The company faces possible takeover or restructuring.
In the tech sector, Asian chip stocks attracted attention after Taiwan Semiconductor Manufacturing Co. (TSMC) projected quarterly sales and capital expenditure above analysts’ expectations, suggesting strong demand for AI hardware into 2025. However, TSMC’s Taiwanese shares fluctuated, following a 3.9% increase in its US-listed counterparts.
Nintendo Co. saw its shares drop sharply, marking their largest decline in over three months, after an early glimpse of its upcoming Switch 2 console suggested minimal changes to the design. Meanwhile, in Australia, Rio Tinto Group’s stock fell following news of preliminary talks regarding a potential merger with Glencore Plc.
Currency markets saw little movement, with the US dollar stable. The yen held a gain of over 1% against the dollar this week, buoyed by expectations that the Bank of Japan may hike interest rates next week. A recent Bloomberg survey showed 74% of economists predicting a rate increase, up from 52% in the previous poll.
US Treasuries were mostly unchanged, following a modest rise on Thursday after Federal Reserve Governor Christopher Waller signaled that rate cuts could occur in the first half of 2025 if inflation remains favorable. Market expectations indicated some potential easing later in the year, with Australian bonds also edging higher.
Damian McIntyre, multi-asset portfolio manager at Federated Hermes, noted that the December US inflation data alleviated market concerns, setting the stage for inflation to continue falling in early 2025.
On Wall Street, volatility in the second half of 2024 boosted earnings for investment banks. Morgan Stanley reported a more than doubling of its fourth-quarter profit, driven by increased trading revenue. Bank of America also exceeded profit estimates, bolstered by the highest investment banking fees in three years.
As the US earnings season unfolds, economic data showed mixed results on Thursday. While homebuilders expressed less optimism about sales prospects, retail sales figures indicated robust consumer spending during the holiday season.
David Lefkowitz, UBS Global Wealth Management, pointed out that the upcoming earnings reports would allow investors to shift focus from macroeconomic trends to corporate performance, reaffirming his positive outlook on US equities.
In commodities, oil prices ticked upward after a 1.7% drop on Thursday, as markets absorbed the impact of new sanctions on Russian crude and mixed signals from President-elect Donald Trump regarding the continuation of these sanctions. Oil is poised for a fourth consecutive weekly gain, while gold is on track for its third straight week of advances.
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