Asia Day Ahead: Asian markets open mixed amid China concerns

Asia open

The Asian session looks set for a mixed start today, with the Nikkei 225 up 0.58%, the ASX 200 up 0.49% and the Kospi down 0.89% at the time of writing. While investors remain comfortable adding risk to their portfolios, the bulk of recent traction has clearly concentrated around growth stocks overnight. US growth sectors all gained more than 1% while value sectors mostly dipped into the red. Investors have been selective in their exposure, and the shunning of value in favour of growth could mean limited gains for the Asian session.

China’s recovery momentum softens further

While there is some optimism that China’s stimulus measures may be working their way into the economy, the recent string of economic data, particularly for retail sales, suggests it is still too early to cheer. China’s November retail sales rose by 3.0% year-on-year YOY), underperforming the 5.0% consensus, and marking a fading of recovery momentum from October’s 4.8%. Policy efforts to inject liquidity into the economy seem to have met with limited success in driving consumer spending, as confidence remains low. Continued contraction in home prices means a negative wealth effect could remain a drag on domestic demand as well.

China's stimulus challenges

Fixed asset investment came in below consensus, registering a 3.3% growth versus the 3.5% expected. Industrial production was in line with expectations at 5.4%, but the question remains whether the growth trajectory can be sustained next year in light of upcoming US trade restrictions. The totality of recent data suggests an uneven recovery in China’s economy, which may explain why Chinese authorities have struck a more forceful tone lately in ramping up stimulus efforts going into 2025. However, market participants will have to second-guess what actions will be undertaken for now, and fears of policy disappointment, similar to those seen in October 2024, may remain a key overhang in building exposure to Chinese equities.

China's retail sales, fixed asset and industrial production YOY chart

The Hang Seng unwinds December surge

The lack of policy specifics from Chinese authorities continues to leave market participants hanging, which saw an earlier rally on 9 December fizzle over the past week. The struggle to cross back above its daily Ichimoku Cloud, alongside a reversion in its daily relative strength index (RSI) below its mid-line, suggests that a trend reversal to the upside has failed to materialise for now. Maintaining its current drift lower could see sellers eyeing the 19,454 level next, with any breakdown of this level likely paving the way towards 18,495.

Hang Seng daily chart

Economic data to watch ahead

The economic line-up in Asia will be quiet, with attention turning to the US retail sales release later tonight. Expectations are for US November retail sales to increase by 0.6% month-on-month, up from the previous 0.4%. The core figure is expected to grow 0.4%, up from the prior 0.1%. The data will likely reinforce US economic resilience, with consumer spending holding up strongly.

With a 25 basis point (bp) rate cut from the Federal Reserve (Fed) firmly anchored this week, retail sales may have little impact in swaying rate expectations. At the upcoming Fed meeting, US policymakers will likely lean towards slowing the pace of rate cuts ahead, while remaining committed in bringing rates back to neutral over time.

ASX 200 eyeing for a bounce off trendline support

Having retraced more than 3% from a broad upper channel trendline, the ASX 200 is now seeking a bounce off a near-term upward trendline support at the 8,245 level, in line with its daily Ichimoku Cloud support. Maintaining the current higher-low formation could suggest buyers are holding up, which may bring a move back to retest its December 2024 high at the 8,500 level.

ASX 200 daily chart