EQUITIES: China Property Stocks Drop Amid Disappointing Policy Updates

Asian markets are trading lower today, driven by concerns over upcoming US inflation data and its potential impact on the Fed interest rate cuts path. Key equity benchmarks across the region are all lower with the regional index hitting its lowest level since mid-September. Rising yields, a stronger USD, and trade uncertainties are weighing on investor sentiment. 

• Chinese mainland stocks are stabilizing after earlier losses tied to fears over US-China relations under the Trump administration, with his key picks for top government posts being critical of China. The CSI 300 is flat, Telecom stocks are outperforming the wider market with that index up 2.60%. Hong Kong listed equities continue to struggle with the HSI down 1%, with the Mainland Property Index -1.50% and the HS Tech Index -1.30%.
• Japanese stocks edged lower as the rally following the US election begins to lose momentum. Despite some support from positive earnings reports, after Tokyo Electron jumped 3.50% after reporting better-than-expected 2Q results, overall market sentiment is dampened by uncertainty around US economic policy. The TOPIX is 1% lower, while the Nikkei is -1.10% lower
• South Korean stocks are under pressure, with tech giants like Samsung and LG Energy leading the losses. Foreign investors have sold $202m of Korean equities this morning, with majority of that coming from tech stocks, while there has been small buying of Service & Medical stocks. Earlier the unemployment rate rose to 2.7% vs 2.6% est and up from 2.5% in September. Taiwan equities saw their largest outflow in over two months on Tuesday, the TAIEX is trading little changed today.
• Australian equities have been dragged down by losses in banking and mining stocks, tracking Wall Street's retreat after a recent rally. The ASX200 is trading 1.10% lower today. New Zealand's NZX50 is 0.85% lower.

USD/CNH sits just up from session lows in latest dealings, the pair near 7.2300 (lows rest at 7.2260). We are up around 0.20% in CNH terms so far today, unwinding part of the 1.3% loss seen in the prior 3 sessions. The much stronger than expected CNY fixing (with the widest error since Aug 5 in USD/CNY terms) has helped pull the pair away from the 7.2500 region. 

• Spot USD/CNY is also tracking lower in early dealings, last near 7.2200 This pair couldn't get much above 7.2400 yesterday. So these may be near term levels (above 7.2500 for USD/CNH), that may be difficult to breach, given the step up in push back via the fixing bias today.
• For USD/CNH we may see support around initial post US election highs near 7.2100/30, on any further pull back. The simple 200-day MA is around 7.2000, while key EMAs rest sub this figure.
• The market bias may rest with buying dips in the pair, given risks around the outlook into 2025 in terms of trade tensions with the US. The near term focus though will rest with the upcoming US CPI print.
• The local equity tone was negative in early trade but is now close to flat. 

The US visible trade deficit widened almost $80bn in September from December 2023 with bilateral deficits with NAFTA, the EU, China and Pacific Rim ex China all widening. With Trump’s US election win, some iteration of his promises to increase tariffs is likely, but there are likely to be exemptions. 

US bilateral trade positions US$bn 12mth sum

• His pro-growth policies have driven the US dollar higher with the USD BBDXY up 2.0% since November 5 to its highest level in a year, making a narrowing of the deficit more difficult if the move is sustained.
• While Trump promised a uniform tariff of 10-20% on all imports, China and Mexico were the focus. China could face 60% uniform tariffs and Mexico 25% with possibly 500% for cars. Chinese auto firms have been producing in Mexico to avoid protectionism.
• The US’ deficit with China since December 2020, end of Trump’s last term, has actually narrowed around $21bn but widened again this year. Whereas with Mexico it is $54bn and $13bn wider respectively.
• Mexico stands to lose significantly with 83% of 2023 goods imports going to the US worth around 6.8% of its GDP, but Trump has said it can avoid tariffs by controlling criminal and drug transits across the border.
• China is far less dependent with 15% of exports going to the US worth 2.8% of GDP but given slow growth there, it will want to avoid facing increased protectionism and is likely to retaliate with its own measures.
• The US deficit with the EU is almost $20bn wider YTD and over $45bn since December 2020. European officials are aware that the US will want to turn this trend around and European Commission President von der Leyen suggested to Trump that Europe could increase its imports of US LNG.
• The deficit with the Pacific Rim ex China widened over $20bn in 2024 to date. In Asia, Korea and Japan are most exposed with around 20% of exports going to the US. 

2023 Exports to US %