Asian markets experienced a lackluster beginning on Thursday, grappling with a gloomy economic outlook in China and waning hopes for an early global rate easing cycle. The uncertainty surrounding China’s economic recovery and diminishing expectations of a swift rate cut led to subdued performances across the region.
The MSCI’s broadest index of Asia-Pacific shares outside Japan managed a modest 0.1% gain, but it remained close to Wednesday’s two-month low of 490.45 points. The index suffered a significant setback on Wednesday, plummeting over 2%—its most substantial one-day percentage drop in more than five months. The slump was predominantly fueled by a decline in Chinese stocks following troubling economic data pointing to an unstable recovery in China.
Khoon Goh, Head of Asia Research at ANZ, commented on the prevailing negative factors, stating, “The paring back of rate cut expectations is definitely a factor… (but) for Asia, the bigger driver is the growth concerns around China. That continues to pose worries for investors.”
China’s economic growth for 2023 was reported at 5.2%, slightly exceeding the official target. However, the recovery proved more fragile than anticipated, marked by a deepening property crisis, rising deflationary risks, and lackluster demand. China’s blue-chip stock index hit its lowest point since 2019, touching 3,204.6383 points, while Hong Kong’s Hang Seng Index reached a 14-month low of 15,183.96.
Matt Simpson, Senior Market Analyst at City Index, commented on the Hang Seng Index, saying, “As bearish as the Hang Seng (Index) is, it is trying to find support around 15,300 after an extended move lower. I see no immediate reason to be a buyer of China’s equities, but bears may want to warrant caution, especially as the index moves towards 15,000 and the 2022 low as they strike me as obvious support levels to trigger a shakeout.”
Japan’s Nikkei, in contrast, remained resilient, rising 0.3% and hovering near a 34-year peak reached on Wednesday. Foreign investors have demonstrated confidence in Japanese equities, with ongoing net buying activity.
In Australia, economic data revealed a sharp decline in employment in December after two months of unexpected growth. The jobless rate remained at a 1-1/2 year high, intensifying expectations that interest rates may have peaked. The initial negative market reaction saw the Aussie dollar fall, but it later recovered to trade 0.05% higher at $0.6555. The S&P/ASX 200 index in Australia recorded a 0.75% decline, reaching a one-month low in line with the global equity downturn.
The broader market sentiment reflected a pullback in expectations for the global easing cycle, particularly led by the Federal Reserve. U.S. Treasury yields inched higher, with traders now estimating a 60% chance of a Fed cut in March, compared to nearly 70% a month ago.
Despite the dollar hovering near a one-month high against a basket of currencies, the European Central Bank (ECB) and Bank of England signaled caution against premature rate cut expectations. ECB President Christine Lagarde emphasized that victory against inflation in the Eurozone had not yet been won.
In commodities, oil prices saw a slight uptick as OPEC forecasted strong growth in global oil demand over the next two years. U.S. crude rose to $72.81 per barrel, and Brent gained to $78.02. Spot gold also registered a 0.26% gain, reaching $2,010.89 an ounce.
The unfolding economic dynamics have left investors navigating through uncertainties, with China’s economic health and shifting rate cut expectations creating a complex landscape for Asian markets.