China stocks suffered another slump on Friday, while the Nikkei slipped and most other Asian markets edged down. Shares in India saw a slight rise.
China’s main benchmarks dropped to fresh lows in years amid lingering fears that Xi Jinping’s new leadership team will put politics over economic growth.
Recent Covid flare-ups and stringent anti-virus measures also dashed investor hopes of a significant easing of China’s zero-Covid policy after the Communist Party Congress, adding to concerns of a dim economic outlook.
China’s blue-chip CSI 300 Index closed down 2.5% on Friday to touch its lowest level in 2.5 years, while Hong Kong’s Hang Seng Index plunged 3.7% to hit new lows since the 2008-09 global financial crisis.
Investor sentiment was hit as President Xi secured a precedent-breaking third leadership term and introduced a new Politburo Standing Committee stacked with loyalists.
The unexpected results sent the CSI 300 Index down 5.4% for the week, the biggest weekly fall since July 2021. And the Hang Seng Index had its worst week in nearly five years, plunging 8.3%.
Covid Outbreaks Hit Mood
Goldman Sachs said in a Friday note that sentiment was further dampened by fresh Covid outbreaks. Daily new domestic cases increased over the past week, while cities with high- or mid-risk districts increased to nearly 50% of national GDP, approaching a record high, it wrote.
Analysts at Nomura said there is almost no sign of an easing of the zero-Covid policy since the end of the Party Congress, instead the execution has been clearly stepped up in a rising number of cities. They maintain the view that zero-Covid will continue until at least March 2023.
And an analyst for Capital Economic said it could be still enforced by 2024.
Stocks tumbled across the board on Friday, with Hong Kong-listed Chinese tech giants down 5.6% leading the decline. Food delivery giant Meituan plunged 7.6% and social media conglomerate Tencent fell 5.8%.
Real estate developers, new energy shares and consumer staples listed in the mainland market retreated between 2.5% and 4%.
Reflecting much more bearish sentiment among global investors toward China, an index measuring the premium of China-listed A-shares over Hong Kong-listed H-shares closed at the highest level since early 2009.
According to the gauge, mainland-listed shares, which are less vulnerable to foreign selling, are an average 53% more expensive than their Hong Kong counterparts.
Meanwhile, three of China’s largest lenders posted third quarter profit rises of over 6% as bad loan ratios shrunk.
Industrial and Commercial Bank of China (ICBC), the world’s largest commercial lender by assets, said net profit rose 6.8% year-on-year in the third quarter in a Friday filing.
Agricultural Bank of China and Bank of Communications followed suit with net profit up 6.4% and 6.7%, respectively, in their earnings filings. These large banks are insulated from property woes largely because of their diversified portfolio compared to smaller lenders.
Nikkei Slips 0.9%
Japan’s Nikkei share average fell on Friday as weakness on Wall Street and some poor domestic earnings results took a toll on sentiment, although the benchmark index managed to protect its first weekly gain in three.
Selling was also capped by some bright spots in domestic earnings, as well as caution over taking positions heading into next week when the US Federal Reserve decides policy.
The Bank of Japan’s decision earlier in the day to keep stimulus settings unchanged, as was expected, had limited effect on the market.
The Nikkei lost 0.9% to 27,105.30, but stayed well above the psychological 27,000-mark. It had briefly dipped below that level in the morning, for the first time since Monday.
The broader Topix slipped 0.34% to 1,899.05, giving up a small rise from the recess.
For the week though, the Nikkei was 0.8% stronger, while the Topix is 0.9% higher, with both notching the first weekly gains since the week ended October 7.
Japan’s earnings season has picked up pace since Thursday and reaches a peak next week. Robot-maker Fanuc was the worst performer on the Nikkei, sliding 5.5% after cutting its earnings forecast.
However, corporate results have been strong overall so far, with chip-related companies standing out. Chip equipment maker Advantest jumped 2.4% after its results, putting it among the Nikkei’s top three performers.
Taiwanese, Korean, Malaysian and Indonesian Stocks Edge Down
Emerging Asian currency and stock markets were mixed as investors waited for next week’s Federal Reserve meeting to see if the central bank is willing to slow its pace of interest rate hikes.
Shares in Taiwan, South Korea, Malaysia and Indonesia fell between 0.2% and 1.1% after the S&P 500 and the Nasdaq Composite Index closed lower overnight.
Asian currencies flitted between gains and losses ahead of the Fed meeting. While a 75 basis-point rate hike at the conclusion of Fed’s November 1-2 policy meeting is all but assured, the likelihood of a smaller, 50 basis-point rise in December was 55%, according to CME’s FedWatch tool.
Miners’ Concerns Drag ASX Down
Australian shares snapped a four-day winning streak on Friday, dragged down by heavyweight miners on China demand concerns, while technology stocks tracked their US peers lower.
The S&P/ASX 200 index closed 0.9% lower at 6,785.70, but rose 1.6% for the week – its best since the week ended October 7.
Miners were the biggest laggards with a 4.5% drop, as iron ore futures tumbled on mounting concerns about global steel demand and China’s economy, which has been hit by Covid curbs and a property sector downturn.
Mining giants Rio Tinto, BHP Group and Fortescue fell between 4.4% and 8.2%.
Tech stocks fell 2.2% after the Nasdaq closed lower overnight as investors contended with solid economic data and a mixed bag of corporate earnings.
Indian Shares Edge Up
Indian shares traded higher, boosted by energy and automobile stocks and as the continued drop in US Treasury yields made riskier assets more appealing.
The NSE Nifty 50 index advanced 0.3% to 17,786.80, and the S&P BSE Sensex rose 0.34% higher to 59,959.85 – for their second weekly rise.
Foreign institutional investors bought a net 28.18 billion Indian rupees (over $342 million) worth of equities on Thursday, while domestic investors sold net 15.80 billion rupees worth of shares, as per provisional data available with the National Stock Exchange.
World share markets were down for a second day running on Friday as a near $1 trillion weekly wipeout in top tech stocks outweighed hopes of a slowdown in Fed and ECB rate rises and news that the US economy is not in recession yet.
European shares were down nearly 1% as Thursday’s weak forecasts from Amazon and Apple sent the tech sector down over 2% and the prospect of renewed Covid curbs in China hit mining and oil firms.
In bond markets, borrowing costs were also starting to creep up again although what analysts had described as a dovish ECB meeting on Thursday meant Germany’s 10-year Bund yields were set for their biggest weekly fall since October 1987.
Heavy falls in China meant Asia-Pacific shares ex-Japan were closing 1.9% lower at 432 points which was just above a 2.5-year low touched on Monday.
MSCI’s main world index which tracks 47-countries was down 0.5% on the day although it, like both European and US markets, was heading for its third weekly rise in the last four.
It has been disappointing earnings forecasts that have hit markets in recent days.
Amazon.com and Apple were the latest tech behemoths to face heavy punishment from investors for their numbers on Thursday and nearly $1 trillion could be wiped off the big US tech giants this week alone.
Facebook parent company Meta has plunged 25% bringing its year-to-date slump to 70% or over $670 in value terms, while Apple’s disappointing forecast for the traditionally lucrative holiday season had sent it shares down 13% after hours.
All Eyes on Possible Fed Pivot
Markets have started to trade a Fed pivot again, but this is defined as hiking in smaller increments, not as a “proper” pivot from hikes to cuts, according to Citi strategists, noting that an actual pause is still some time away.
“No Powell Pivot, No Santa?” Citi’s emerging economy analysts asked, referring to the so-called “Santa rally” that markets often see towards the end of the year.
Oil prices also fell 1.3% to $95.70 a barrel for Brent crude. But they were also poised for fourth weekly rise in the last five and many market veterans see prices staying around $100 barrel in the coming months.
- Reuters with additional editing by Jim Pollard