Time to Invest in Chinese Tech Giants

26.09.2024

|

The recent decision by the People’s Bank of China (PBOC) to cut interest rates has had a significant impact on the financial markets. This move, aimed at revitalizing the world's second-largest economy, has led to notable gains in Chinese shares and exchange-traded funds (ETFs).

Before the PBOC’s announcement, the iShares China Large-Cap FXI ETF had already risen by 28% from its 2024 low on January 22. The PBOC’s decision to lower its benchmark interest rate by 0.2 percentage points, reduce the reserve requirements for banks, and inject liquidity into financial institutions to purchase Chinese stocks further boosted the ETF by an additional 9.6%, bringing its total increase to 40% from its low. Analysts from 22V Research, Michael Hirson and Houze Song, noted that these measures reflect an urgent need to stimulate growth and restore confidence, though they do not represent the most aggressive possible actions.

Chinese stocks have experienced prolonged downturns, but historical patterns suggest potential for recovery. According to BTIG technical analyst Jonathan Krinsky, the Hang Seng Index, which has a longer historical record, has only seen three consecutive years of decline twice since 1965. In both instances, the index subsequently enjoyed five-year winning streaks, with gains ranging from 4% to 147%. Krinsky believes that the current market conditions and sentiment could lead to a similar positive trend, making China’s stock market an attractive opportunity.

The PBOC’s stimulus measures also had a positive effect on U.S.-traded shares of Chinese companies. For instance, PDD Holdings, the parent company of online marketplace Temu, saw its shares rise by 11%, leading the Nasdaq gainers. Other notable increases included Alibaba Group Holding (7.9%), JD.com (14%), and electric vehicle manufacturers Li Auto and Nio, both up by approximately 11%. The iShares MSCI China ETF also rose by 9%.

U.S.-based companies with significant exposure to the Chinese economy also benefited from the stimulus package. Caterpillar led the Dow gainers with a 4% increase, while Freeport-McMoRan topped the S&P 500 with a 7.9% rise. Other companies such as Las Vegas Sands, Wynn Resorts, and Estee Lauder also posted substantial gains.

The announcement of the China stimulus package influenced commodity and cryptocurrency markets as well. Crude oil futures rose by nearly 2% amid ongoing tensions in the Middle East, while gold futures reached a new record high of around $2,690 an ounce, up more than 1%. Bitcoin also saw a 1% increase, trading at over $64,000, its highest level in a month.

The PBOC’s recent interest rate cuts and other stimulus measures have had a profound impact on both Chinese and global markets. The positive response from Chinese shares, ETFs, and U.S.-traded Chinese companies indicates a renewed confidence in the potential for economic recovery. Historical trends and current market sentiment suggest that this could be the beginning of a significant upward trend for Chinese stocks, making it a market worth watching closely.

Market reviews

Gold’s meteoric rise amid Israel-Hamas war

The price of gold has recently seen a significant recovery, climbing over 1.0% to trade in the $2,660s per troy ounce. This resurgence is largely attributed to heightened geopolitical tensions following the Israeli army’s ground invasion of Lebanon, which has increased the demand for gold as a safe-haven asset. Several factors have contributed to the recent movements in gold prices.

Key Oil market moves to invest

Saudi Arabia is poised to shift its oil production strategy, moving away from its unofficial target of $100 per barrel. This change comes as the kingdom prepares to incrementally increase its monthly oil output, aiming to add a total of 1 million barrels per day by December 2025. This policy shift acknowledges the current weakness in oil prices and aims to stabilize the market while ensuring the kingdom’s economic stability through alternative funding sources.

Time to Invest in Chinese Tech Giants

The recent decision by the People’s Bank of China (PBOC) to cut interest rates has had a significant impact on the financial markets. This move, aimed at revitalizing the world's second-largest economy, has led to notable gains in Chinese shares and exchange-traded funds (ETFs).

Gas. Winter is coming!

Natural gas prices have been experiencing significant fluctuations due to various global factors. A decline in energy consumption in the US and Europe has put downward pressure on prices, while geopolitical tensions, particularly in the Middle East, have disrupted global trade and energy supplies. Additionally, Europe is grappling with the aftermath of an energy crisis triggered by the Russian invasion of Ukraine.

Bitcoin Uncertainty

Bitcoin (BTC) experienced a decline in early trading on Friday, September 6, following a more than 3% drop the previous day. Market participants had anticipated a 25 basis point reduction in the federal funds rate, which could potentially boost the legacy cryptocurrency. However, Bitcoin has fallen around 24% since its record high on March 14, due to a lack of new narratives to drive bullish sentiment.

Oil Market Shake-Up: Buy or Sell?

Oil prices have been trending lower recently, influenced by expectations of an increase in OPEC+ production from October. Also, signs of weak demand in major economies such as China and the United States have raised concerns about future consumption growth.

Gold and Silver are rising again

The gold market is currently experiencing positive momentum, with prices trading in favorable territory on the daily chart. Despite being constrained by a five-month-old ascending channel’s upper boundary and the all-time high, the overall outlook remains bullish due to recent events.

YEN’s Growth Ambitions

The USDJPY currency pair experienced a significant decline following Federal Reserve Chair Jerome Powell’s dovish remarks last Friday. This downward trend continued into the morning of August 26, exacerbated by escalating geopolitical tensions between Israel and Hezbollah over the weekend. Analysts from Oversea-Chinese Banking Corporation (OCBC), Frances Cheung and Christopher Wong, have noted these developments.