Asian stocks kicked off the year with a flat-to-lower performance on the first trading day of 2024, influenced by weak economic indicators from China and concerns stemming from a powerful earthquake in Japan.
Market sentiment faced headwinds as China’s economic data, particularly the official Purchasing Managers’ Index (PMI), indicated limited improvement in business activity. The Shanghai Shenzhen CSI 300 index dropped 1.1%, extending a decline of over 12% from 2023. The Shanghai Composite index also lost 0.3%, while Hong Kong’s Hang Seng index slid 1.7% due to losses in mainland stocks.
China’s official manufacturing PMI contracted more than expected in December, and the average reading for 2023 signaled ongoing contraction. The non-manufacturing PMI remained close to contraction levels in December. Despite a private survey showing some resilience in manufacturing activity, growth remained modest, primarily due to sustained weakness in offshore demand for Chinese goods.
The post-COVID economic recovery in China struggled to materialize in 2023, with challenges such as deflation and lackluster government stimulus measures. Investor confidence in Chinese markets waned, leading to sustained outflows throughout the year.
Elsewhere in Asia, Japanese markets were closed for a week-long holiday, but futures for the Nikkei 225 index fell 0.4%. The Nikkei was the best-performing major stock index in 2023, posting a nearly 30% gain.
Broader Asian markets experienced a mixed start, with Australia’s ASX 200 gaining 0.4%, while South Korea’s KOSPI fell 0.1%. Indian stocks, represented by futures for India’s Nifty 50 index, indicated a weak open, with markets poised for profit-taking after significant gains in 2023.
Market participants were eagerly awaiting signals on potential U.S. interest rate cuts, particularly from key nonfarm payrolls data for December, scheduled for release on Friday. Expectations of early interest rate cuts by the Federal Reserve persisted, with traders pricing in over a 70% chance of a 25 basis point rate cut in March, according to CME’s Fedwatch tool. The rally in Asian markets, fueled by strong gains in Wall Street through December, is contingent on the sustainability of U.S. economic data.