China Trails as Asian Stocks Surge; Topix Up 20% YTD

China's CSI 300 struggles amid trade tensions, while Japan's Topix rises over 20% for second consecutive year.

By Athena Xu

7/10, 22:33 EDT
Taiwan Semiconductor Manufacturing Company Ltd.

Key Takeaway

  • Asian equities show mixed performance; Japan's Topix up 20% YTD, while China's CSI 300 struggles amid economic challenges and trade tensions.
  • Chinese stocks see temporary boost from national team inflows and technical support, but sustainability remains uncertain ahead of the Third Plenum.
  • Global tech stock rally lifts S&P 500 and Nasdaq 100 over 1%, with Taiwan Semiconductor hitting record levels; US inflation data in focus for potential Fed rate cuts.

Asian Market Performance

Asian equities have shown a mixed performance recently, with notable gains in Japan, India, South Korea, and Taiwan, while China has struggled to maintain momentum. The CSI 300 index in China has been unable to break its weekly string of declines, reflecting ongoing economic challenges and trade tensions with the US. In contrast, India's benchmarks have been performing robustly, and Japan's Topix has risen more than 20% for the second consecutive year, with six months still remaining in the year.

The Federal Reserve's potential easing and the US leading the world in upward earnings revisions have contributed to the positive sentiment in Asian markets. "Markets remain remarkably calm despite the flood of data this week, including Fed Chair Powell’s testimony, CPI/PPI reports, and the beginning of earnings season," said Mark Hackett at Nationwide.

China’s Market Struggles

Chinese stocks have faced difficulties in maintaining bullish momentum, primarily due to a weak economy, ongoing trade tensions with the US, and concerns about softening earnings. The recent surge in Chinese stocks was driven by sudden money inflows, with the national team playing a key role. Turnover for the China Southern CSI 1000 ETF, a favorite of the national team, swelled to its highest level since late April, boosting sentiment. Foreigners' net purchases of A shares jumped to more than 14.1 billion yuan, snapping five straight days of net selling.

A key technical support level also played a role, with the Shanghai Composite Index bouncing back after falling to 2,904, the 50% Fibonacci retracement level of the February-May rally. However, the sustainability of this rally remains uncertain, especially with the upcoming Third Plenum next week, where investors will be looking for policy signals.

Tech Stocks Boost Global Equities

Global equities have been lifted by a rally in the world's largest tech stocks, with the S&P 500 and Nasdaq 100 each gaining more than 1% and reaching new highs. This bullish sentiment has echoed in Asian markets, with equities in Japan, Australia, and China rising. Taiwan Semiconductor Manufacturing Co. traded at record levels after reporting its fastest pace of second-quarter sales growth since 2022. Sony Group Corp. and SK Hynix Inc. were among the top contributors to gains in the regional stock index.

The upcoming US inflation data is also a key focus for investors. The core CPI, which excludes food and energy costs, is expected to rise 0.2% in June for the second consecutive month, marking the smallest back-to-back gains since August. "June’s CPI report looks to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory," said Anna Wong at Bloomberg Economics. This could set the stage for the Federal Reserve to start cutting rates in September, with swaps pricing in two Fed cuts in 2024.