Asia Day Ahead: HSI unwind Dec gains, ASX found near-term support

Asia open

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

China’s recovery momentum once again showed some fizzling

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 that it is still too early to cheer. China’s November retail sales rose by 3.0% year-on-year, underperforming the 5.0% consensus, and marked 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, while continued contraction in home prices means that negative wealth effect could remain a drag on domestic demand as well.

Fixed asset investment came in below consensus as well, registering a 3.3% growth versus the 3.5% expected. Industrial production was in line with expectations at 5.4%, but of course 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 still, 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 on what actions will be undertaken for now, and the fears of policy disappointment, like those seen in October 2024 may remain a key overhang in building exposure to Chinese equities.

The Hang Seng Index unwinding its December surge

The lack of policy specifics from Chinese authorities continues to leave market participants hanging, which saw an earlier rally in 9 December fizzle off over the past week. The struggle to cross back above its daily Ichimoku Cloud, alongside a reversion in its daily relative strength index (RSI) back 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 for the 19,454 level next, with any breakdown of this level likely to pave the way towards the 18,495 level.

Economic data to watch ahead

The economic line-up in Asia will be quiet, with attention revolving around 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 aspect is expected to grow 0.4%, up from the 0.1% prior. The data will likely reinforce US economic resilience, with consumer spending holding up strong.

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 holding up, which could bring a move back to retest its December 2024 high at the 8,500 level.