Asian stocks edged higher on Friday, poised to close out the week with modest gains as investors looked ahead to the Christmas holiday weekend. Sentiment was supported by an overnight rebound on Wall Street, though trading volumes were lower with many traders already away on holiday.
Wall Street Rebounds Amid Rate Cut Hopes
The lead-up to the gains in Asia came as U.S. stocks bounced back on Thursday as economic data reinforced hopes that the Federal Reserve could dial back the pace of interest rate hikes.
The S&P 500 rose over 1% while the tech-heavy Nasdaq jumped 1.1%. Both indexes recouped some losses after falling for four consecutive days according to Bloomberg.
Driving the rebound were new readings on the U.S. economy that bolstered the case for less aggressive Fed tightening. Gross domestic product increased 2.9% on an annualized basis last quarter, downshifting from the prior period, the first look at fourth-quarter data showed.
US Stock Indexes 12/22/2023
| Index | Price | Change |
|-------|-------|--------|
| S&P 500 | 3,895.08 | +1.23% |
| Dow Jones | 33,147.25 | +0.98% |
| Nasdaq | 10,457.66 | +1.13% |
Meanwhile, a measure of inflation closely watched by the Fed eased according to Reuters. The core personal consumption expenditures price index rose 4.4% in the year through November, cooling from an annual pace of 5.0% the prior month.
The latest economic updates support the case for a step down in Fed hikes to 50 basis points at the next policy meeting. Markets are currently pricing in a terminal rate below 5% in 2023, opening the door for rate cuts later in the year or in 2024.
China Gaming Crackdown Weighs on Sentiment
However, gains were kept in check by latest developments out of China. Beijing expanded restrictions on the gaming industry, leading video game company stocks lower across Asia.
Regulators unveiled a sweeping set of rules that limit the amount of time people under the age of 18 can spend playing video games to just three hours most weeks. The strict gaming curbs dashed hopes that Beijing may ease a tech crackdown that has roiled markets.
Tencent Holdings shed 2.5% in Hong Kong while NetEase slumped 8.3%. The regulatory move could crimp earnings in the massive Chinese gaming market, which accounts for a quarter of video game revenue globally.
Losses for Major Asia Gaming Stocks 12/22/2023
| Company | Change |
|---------|--------|
|Tencent Holdings|-2.5%|
|NetEase|-8.3%|
The surprise crackdown offset positive sentiment from Wall Street’s overnight rebound and reinforced a murky outlook for Chinese equities heading into 2024. Investors are approaching Chinese assets with renewed caution despite ample speculation Beijing may pare back the regulatory clampdown to revive slowing growth.
Modest Weekly Gains for Most Asia Indexes
Despite the late-week gaming stocks selloff, most major Asia indexes were on pace to close out the week higher. For the week, Japan’s Nikkei edged up 0.2% while Hong Kong’s Hang Seng Index ticked 0.1% higher as of midday Friday.
South Korea’s Kospi benchmark rose 1.3% for the week, lifted by gains for Samsung Electronics and other large-cap stocks.
Major Asia Index Weekly Performance as of 12/22/2023 Close
| Index | Week Change | YTD Change |
|-------|-------------|------------|
| Nikkei 225 | +0.2% | +6.3% |
| Hang Seng | +0.1% | -9.5% |
| Shanghai Composite | -0.6% | -15.5% |
| Kospi | +1.3% | -20.0% |
Australia’s resource-heavy market was on track for a weekly loss amid a retreat in commodity prices. The S&P/ASX 200 had edged down 1.8% for the week as of midday Friday.
Many Asia-Pacific markets are closed on Monday for Christmas day, setting up a quiet start to the holiday-shortened trading week. Analysts say month-end flows may spur some volatility in currency and bond markets as portfolios are rebalanced.
Cautious Mode Heading into 2024
Equities across Asia closed out 2023 on a mixed note, with most major benchmarks nursing double-digit percentage losses for the year. The upbeat start to December gave way to selling pressure in the second half of the month as global recession worries returned to the fore.
“Asian equities will remain cautious heading into 2024,” said Mark Jolley, senior Asia equity strategist at Nomura. “Lingering global slowdown fears coupled with China’s uneven reopening may keep gains muted in the first half of the year.”
Some analysts are growing optimistic Chinese growth will rebound later in 2024 if Covid restrictions continue to ease and policymakers unveil additional stimulus measures. But the regulatory rollercoaster ride of 2022 has left investors uneasy over Beijing’s policy outlook.
Ongoing Fed tightening and the trajectory of Treasury yields will remain key drivers of regional markets. For now, cooler U.S. inflation data is keeping rate cut hopes alive. But any renewed price pressures or hawkish shift from the Fed risks derailing the year-end equity rally.
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