Asian markets close in on best performance in ten months amid mixed global signals

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30th November 2023 – (Hong Kong) Asian equities were set to register their most robust showing in ten months at the close of Thursday’s trading, notwithstanding a generally lacklustre opening across most regional markets. This followed a mixed bag of signals from the US Federal Reserve and a similar volatility in the U.S. equities market the previous night.

The MSCI Asia-ex-Japan index has risen by 6.7 per cent this month, putting it on track to record the best month since the start of the year. South Korea’s KOSPI has been the most potent performer, boasting gains of 10.5 per cent in November. It is closely trailed by indices in Taiwan and Japan, including the Nikkei Average.

Global stock markets were largely rudderless on Wednesday, following a month of strong performance underpinned by the prospect of peak rates from the Federal Reserve. Loosening financial conditions due to a drop in both the US dollar and bond yields also contributed to the swings.

In November, ten-year U.S. yields have fallen by over 60 basis points, potentially marking the steepest monthly decline since late 2008. On Wednesday, mixed signals from U.S. central bank officials did little to provide clarity, although investors remained attentive to comments from Fed Governor Christopher Waller. Waller, known for his hawkish stance, suggested on Tuesday that rate cuts could be on the horizon if inflation continues to ease.

Recent U.S. data has showcased a robust economy in Q3, accompanied by an inflation downtrend. This has bolstered expectations of the Federal Reserve potentially cutting interest rates ahead of schedule.

“Liquidity and momentum can still buoy markets through December,” said Redmond Wong, a market strategist for Greater China at Saxo Markets. He added that rate cuts could emerge as early as Q1 due to signs of a slowing U.S. economy.

According to Goldman Sachs, U.S. financial conditions are at their most relaxed since the start of September, easing 100 basis points within a month. The bank’s global and emerging market indexes nudged up last week, with financial conditions also looser by approximately 100 bps month-on-month.

Analysts at J.P. Morgan, in their note on the 2024 global outlook, cautioned that without quick easing from the Fed, equities could face a more challenging macro environment next year. They cited softening consumer trends and highly valued equities with low volatility as potential risks.

In China, a key factory survey revealed that manufacturing activity shrunk for the second consecutive month in November, hinting that increased government support might be necessary to bolster economic growth.

The Hang Seng Index in Hong Kong and China’s benchmark CSI300 Index both opened 0.1 per cent lower. The CSI300 Index has fallen by over 2 per cent in November. Meanwhile, oil prices rose more than $1 on Wednesday as investors await an upcoming OPEC+ meeting.

Ahead of the OPEC+ meeting, discussions have centred around the possibility of further output cuts, although specific details are yet to be finalised. On Thursday, U.S. crude dropped by 0.33 per cent to $77.6 per barrel, while Brent fell 0.34 per cent to $82.82. Concurrently, spot gold edged up 0.03 per cent to reach $2,045.29 an ounce.