Asian markets gained momentum following a positive close on Wall Street, as investors shifted their focus from megacap technology stocks to economically sensitive shares, including smaller companies. This rotation signals a broader optimism about the global economy’s recovery, despite ongoing concerns surrounding China’s economic outlook and slowing demand in the semiconductor industry. In this article, we dive into the market movements across Asia, the factors influencing investor sentiment, and the broader economic context shaping the landscape.
On Thursday, stock markets in Hong Kong, mainland China, and Australia posted gains, while Japan’s indices experienced fluctuations. This rally was primarily driven by investor optimism following Wall Street’s positive performance, where the S&P 500 rose by 0.5%. US equity futures edged lower, reflecting a slight pullback, but the gains in Asia show a more upbeat sentiment, particularly in smaller companies that tend to thrive in more stable economic conditions.
- Hong Kong’s Hang Seng saw a notable increase of 1.3%, driven by gains in sectors like real estate and financials.
- Mainland China’s Shanghai Composite added 0.3%, buoyed by renewed optimism in domestic growth, despite ongoing concerns about the nation’s ability to hit its 2024 GDP target.
- Australia’s S&P/ASX 200 climbed by 0.8%, as rising employment numbers fueled confidence in the nation’s economic resilience.
- Japan’s Topix was little changed, fluctuating between gains and losses as investors grappled with mixed signals from the domestic economy, including a surprise decline in exports.
The rally in Asian equities was bolstered by a significant shift in investor behavior. On Wall Street, the Russell 2000, an index tracking smaller-cap stocks, reached its highest level in nearly three years. This marks a departure from the dominance of the Nasdaq 100, which, despite climbing 0.1%, lagged behind its smaller-cap counterpart. This movement suggests that investors are rotating out of megacap tech stocks—historically driven by the artificial intelligence (AI) boom—and into sectors that perform well in periods of economic stability and expansion.
David Russell, an analyst at TradeStation, explained the rationale behind this shift: “Investors may be looking to rotate away from large technology companies, which are widely owned and may have fewer clear catalysts going forward. With the election coming and the economy returning to balance, the long-awaited rotation away from megacaps to everything else could finally be at hand.”
This rotation reflects growing confidence in the economic outlook, as smaller companies typically benefit more from improving economic conditions compared to large tech giants, which may face regulatory scrutiny and slower growth after years of outperformance.
While Asian equities performed well, attention remained focused on China, where investors await third-quarter GDP data set to be released on Friday. Economists surveyed by Bloomberg expect the Chinese economy to have expanded by 4.5% year-on-year, marking the weakest pace in six quarters. President Xi Jinping has urged government officials to make concerted efforts in the final quarter to meet China’s annual growth target of around 5%.
Despite Xi’s call to action, concerns are mounting that China’s growth may not reach its target without significant policy intervention. Earlier this month, a series of press conferences by Chinese policymakers provided little in the way of new stimulus measures, leading to skepticism that the government’s efforts will be enough to spur the necessary economic growth.
One area of particular concern is the housing sector, which has long been a cornerstone of China’s economic engine but has faltered in recent years. On Thursday, a press briefing by China’s housing minister is expected to shed light on the government’s plans to address the ongoing property crisis.
In Australia, markets were buoyed by positive labor market data, with the unemployment rate falling to 4.1% in September. This decline in unemployment surprised economists, who had predicted the rate would remain steady. The unexpected drop led to a rise in Australian bond yields, with the 10-year yield climbing five basis points to 4.26%.
This development is significant, as a stronger labor market suggests that the Australian economy is faring well, despite global economic uncertainties. Rising bond yields often indicate expectations of higher inflation or future interest rate hikes, which could have implications for consumer spending and business investment in the months ahead.
Meanwhile, the US 10-year Treasury yield inched higher to 4.03%, reflecting investor caution as they assess the Federal Reserve’s next moves in its fight against inflation. The US dollar index remained near its highest levels since early August, further highlighting the strength of the US economy relative to its global peers.
The Japanese yen remained little changed in early trading on Thursday, after declining against the US dollar in the prior session. This stability comes amid a backdrop of weaker-than-expected export data for September, which caught many market observers off guard. Japan’s export-driven economy faces challenges from slowing global demand, particularly in the semiconductor sector, where supply chain disruptions and weaker demand have weighed on performance.
Taiwan Semiconductor Manufacturing Co. (TSMC) was under the spotlight on Thursday as the company prepared to release its quarterly earnings report. Investors are closely watching TSMC for signs of slowing demand for chips, following a disappointing outlook from ASML Holding NV earlier in the week. ASML, a leading supplier of chip-making equipment, cut its 2025 revenue forecast and reported weaker-than-expected orders, raising concerns about the semiconductor industry’s future growth prospects.
Given that semiconductors are critical components in everything from consumer electronics to advanced AI systems, any slowdown in this sector could have wide-reaching implications for the global economy.
Back in the US, traders continued to digest a slew of corporate earnings reports. Notably, Morgan Stanley jumped 6.5% after reporting a 32% profit increase for the third quarter, driven by strong trading and investment banking revenues. United Airlines Holdings Inc. surged 12% after posting better-than-expected earnings, underscoring the ongoing recovery in the travel sector.
Despite mixed signals from individual companies, the broader market appears to be setting up for a strong finish to the year. According to Scott Rubner, a managing director at Goldman Sachs, the S&P 500 is poised to rally into the final months of 2024, potentially ending the year “well north of 6,000.” Rubner’s analysis is based on historical data, which shows that the median return for the S&P 500 from mid-October to the end of the year is over 5%, with even higher returns during election years.
“The equity market selloff is canceled, and a year-end rally is starting to resonate with clients shifting from hedging from the left-tail to the right-tail as institutional investors are getting forced into the market right now,” Rubner wrote in a note to clients.
In the commodities market, West Texas Intermediate (WTI) crude prices rose 0.6% to $70.81 per barrel after falling for four consecutive sessions. The rebound in oil prices suggests that concerns about a potential supply glut may be easing, although global demand remains a key variable to watch.
Gold held steady at $2,677.17 per ounce after two days of gains, as investors weighed the metal’s appeal as a safe-haven asset against rising bond yields.
Meanwhile, in the world of cryptocurrencies, Bitcoin was little changed at $67,432.7 after rising 1.7% the previous day to reach its highest level since July. Ether, the second-largest cryptocurrency by market capitalization, also saw a modest decline of 0.2%, trading at $2,611.8.
Investors are closely monitoring several upcoming events that could impact market sentiment.
- European Central Bank (ECB) rate decision on Thursday.
- US retail sales, jobless claims, and industrial production data on Thursday.
- Speeches from Federal Reserve officials Austan Goolsbee, Christopher Waller, and Neel Kashkari.
- China’s third-quarter GDP report on Friday.
- US housing starts data on Friday.
As Asian markets continue to rise, investors are carefully balancing optimism about the global economic recovery with concerns about slowing growth in key regions like China and the semiconductor sector. The rotation out of megacap tech stocks and into smaller, economically sensitive companies reflects a shift in sentiment, with market participants betting on a more balanced and stable global economy in the months ahead.
While risks remain, particularly in China and the semiconductor industry, the broader market appears poised for a strong finish to 2024. Traders will be watching key economic data and corporate earnings reports closely for further clues about the trajectory of the global economy and the markets in the final quarter of the year.
