Today’s market analysis on behalf of Dilin Wu Research Strategist at Pepperstone
21st January 2025
Despite expectations of a pullback ahead of Trump’s inauguration, the Hang Seng Index closed higher for the sixth consecutive day, surpassing the 20,000 mark.
This rally is partly driven by stronger-than-expected December industrial production and retail sales in China, along with a 5.4% year-on-year GDP growth in Q4, which has buoyed market sentiment. What’s striking is that the rally didn’t kick off after last Friday’s positive data, but rather, it gained momentum after China’s CPI and PPI data confirmed that deflationary pressures were still in play.
I believe Hong Kong stocks may follow a similar trajectory to U.S. stocks last year, where ‘bad news’ was perceived as ‘good news.’ In other words, weaker economic data led the market to expect stronger stimulus measures and a potential ‘PBoC Put.’
Looking ahead, I expect some short-term consolidation for Hong Kong stocks. Investors will likely take a cautious, wait-and-see approach, especially with tariff details from Trump still pending, and as we head into the National People’s Congress meeting in March. The market could react strongly to new policy directions or stimulus measures aimed at growth and structural reforms. Until then, volatility is likely to persist as traders weigh the ongoing momentum against underlying uncertainties.
As 2025 marks the final year of China’s 14th Five-Year Plan, we can expect an increase in policy support. Key sectors to watch are high-dividend stocks, industries driving new productivity growth, and consumer sectors that could potentially experience a strong rebound, particularly with policies focused on boosting domestic circulation.