Multi-Asset Weekly: Markets Buoyed by Government Support and Strong Earnings
Equities: Markets buoyed by announcement of PBOC stimulus
Chief Investment Office - Hong Kong20 May 2024
  • Equities: Asia markets buoyed by PBOC announcement of property sector stimulus; US equities continue rise on strong earnings and potential September rate cuts
  • Credit: Continued growth support from private sector surplus savings. Disinflationary environment, stable economy, and policy certainty create favourable set up for investors
  • FX: GBP/USD facing resistance at 1.27-1.28 and on 22 May, profit-taking could set in on two significant events; EUR/USD faces resistance after its month-long rally from 1.06 to 1.09
  • Rates: UST 2Y yield to be stuck between 4.70 to 4.90% in the near term; In Asia, we have upgraded 2Y JGB forecast
  • The Week Ahead: Keep a lookout for US Change in Initial Jobless Claims; Singapore CPI
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Property sector support drove rise in Asia equities. China and Hong Kong equity markets were mostly up last week thanks to announcements from China’s central bank to boost its ailing property market – a reduction of minimum mortgage downpayment requirements and removal of mortgage rate floors. The HSCEI and Hang Seng were up 3.2% and 3.1% respectively. Japan equities were also up last week (Nikkei-225 +1.5%; Topix +0.6%) after Bank of Japan (BOJ) Governor Ueda announced that the central bank has no immediate plans to sell its ETF holdings.

US equities continue to be boosted by a strong earnings season as well as a revival in rate cut hopes following signs of a potentially cooling labour market. The Nasdaq, S&P 500, and Dow Jones were up 2.1%, 1.5%, and 1.2% respectively last week. This week, all eyes will be on earnings release of AI stalwart Nvidia for guidance on the sector’s forward earnings visibility.

Topic in focus: Chinese equities – Stellar performance in 2024. Chinese equities had a tumultuous year in 2023, marked by challenges in the property sector and declining exports. This resulted in a return of -11% and underperformed global equities by 11.8 %pts. However, 2024 brought a remarkable turnaround for Chinese equities, which have since posted impressive double-digit gains of 15.5% on a YTD basis, outperforming global equities by 5.2 %pts. Macroeconomic data further indicated a recovery in the economy, with better-than-expected first-quarter GDP, three consecutive months of rising CPI, and official manufacturing PMI remaining in expansionary territory in the recent two months. Additionally, China has also begun the sale of RMB1tn of ultra-long special sovereign bonds, which will be used to stimulate key sectors in its economy.

From a sectoral perspective, we maintain a preference for Chinese platform companies, including online travel companies. Online travel revenue is forecasted to grow robustly by c.18% in 2024, even after experiencing a strong rebound of 110% in 2023. Over the long term, this growth will be propelled by structural changes in travel behaviour, such as the expansion of short-haul travels (e.g., concerts and examinations) and the younger generation's preference for individual trips. These factors are expected to sustain and drive the growth of online travel platform companies.

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