Asia Day Ahead: Nikkei on watch to outperform, Chinese equities may lag

Wall Street Wrap

The start of the new week saw market participants inclined to taking on risks, but no doubt with a selective lean into growth sectors as tech stocks remain the ones doing the heavy-lifting for Wall Street performance overnight. The upcoming speech from Nvidia’s CEO Jensen Huang may have kept optimism in place and with momentum for Nvidia’s share price easing back to more neutral levels since November last year, the event offers a catalyst for markets to reassess its future growth prospects and to potentially kickstart another fresh leg higher. Ahead, CEO Jensen Huang is expected to follow through with his enthusiasm around the demand for its Blackwell chip, with the limiting factor being constrained supply offering reaffirmation for the company’s earnings trajectory.

Apart from that, conflicting signals around Trump’s tariffs have translated to some rollover in major US indices into the later half of the session, revealing market sensitivity to any hints of Trump’s policies as his inauguration day draws nearer. Headlines that Trump’s tariffs may be more selective than broad seem to mark some toning down from his earlier promises, and while the story from Washington Post initially confirmed some market views that tariffs may be less aggressive than feared, Donald Trump was quick to shoot it down as “fake news”. We may expect his rhetorics around tariffs to remain tough, with the potential to be negotiated down eventually, but banking on the prospect of less aggressive tariffs at this stage could seem premature.

Asia Open

The Asian session looks set for some opening gains, with the Nikkei +1.64%, ASX +0.28% and KOSPI +1.01% at the time of writing. The overnight dip in the US dollar may be well-received by risk-takers, while continued weakening in the yen may remain the key driver for the Nikkei’s outperformance. KOSPI has kept up with its near-term bullish momentum, and while political risks persist, the initial reaction has subsided, with room for more policy support to uplift consumer and business confidence ahead offering the basis for some dip-buying.

On the other hand, Chinese equities may continue to lag for now, as geopolitical risks remain a key overhang. Further labelling of Chinese firms on the US military blacklist, such as Tencent and CATL, suggests that tensions are unlikely to be watered down anytime soon, while uncertainty over Trump’s upcoming trade policies will likely keep risk-taking in check.

We prefer a lean into the Nikkei for now, which has been forming a series of higher lows amid an ascending triangle pattern over the past months. Buyers seem to be eyeing for yet another retest of its horizontal resistance at the 40,220 level, which will mark a fifth attempt in pushing for a new multi-month high. Any subsequent move above the 40,220 level should pave the way towards its July 2024 high at the 42,500 level next.

On the other hand, the China A50 index continues to trade within its rectangle formation, with the lower base at the 12,918 level being put to the test for the third time since October 2024. While there may be another attempt for buyers to hold the key horizontal support level, near-term momentum indicators remain bearish. Any breakdown of the 12,918 level could signal for further downside towards the 12,300 level next, where a 76.4% Fibonacci retracement level stands.