Mainland Chinese stocks made a robust return on Tuesday after a week-long break, driven by optimism surrounding potential economic stimulus. However, this positive sentiment did not extend to other regional markets, as investors were left disappointed by a lack of concrete details from Beijing regarding its large-scale support measures. While China’s markets saw a surge, Hong Kong stocks experienced a notable pullback, reversing earlier gains made during China’s holiday period.
China’s CSI300 blue-chip index soared 10% in early trading, reaching its highest level since July 2022, while the Shanghai Composite Index rose to levels last seen in December 2021. In contrast, Hong Kong’s Hang Seng Index dropped 7.6%, with the Hang Seng Mainland Properties Index plunging over 10%. The uneven performance highlighted differing investor sentiments, with the broad MSCI Asia-Pacific index outside Japan slipping 2.2%.
The initial rally in mainland stocks lost some momentum throughout the day, particularly after a closely watched press conference by China’s economic planner, Zheng Shanjie. Investors had been hoping for a clearer outline of fiscal stimulus measures, but the absence of key details left many cautious. According to Gary Ng, a senior economist at Natixis, the day’s movements reflected a market readjustment in China, while in Hong Kong, investors appeared to be taking profits or breaking even.
Broader market dynamics were also influenced by concerns over escalating geopolitical tensions in the Middle East. News of Hezbollah’s rocket attack on Haifa, coupled with potential military actions by Israel, added a layer of uncertainty. These developments dampened the upbeat mood, contributing to declines in European and U.S. stock futures, as well as a dip in Tokyo’s Nikkei index.
Commodity markets saw fluctuations as well, with oil prices retreating after a sharp rise due to supply concerns. Brent crude slipped 1.5% to $79.74 a barrel, while U.S. crude dropped to $75.95. Meanwhile, investors adjusted their expectations for the U.S. Federal Reserve’s interest rate trajectory following a stronger-than-expected U.S. jobs report, keeping Treasury yields elevated. Amid these shifts, the U.S. dollar lost some ground against the yen and sterling, reflecting a recalibration of market expectations.