October 2024 Outlook: United States-Neutral | Europe-Neutral | Japan-Neutral | China & Hong Kong-Slightly Positive | Asia-Slightly Positive
U.S. cuts interest rates by 0.5%. Technology stocks dropped. Harris slightly leads Trump; European economic outlook unclear with the market expecting rate cuts. Conflicts continue; Nikkei Index rebounded, hovering around 39,000 points. Shigeru Ishiba was elected as the new Prime Minister; The Chinese government launched a market stimulus package. Market Confidence in China and Hong Kong is gradually rebuilding; As the U.S. Dollar fell, Asia and Emerging Markets have been benefited, but need to watch for diverging trends and conflict impacts.
🇺🇸 United States-Neutral
U.S. Cuts Interest Rates by 0.5%. Technology Stocks Dropped. Harris Slightly Leads Trump
The Federal Reserve announced on September 18 a 0.5% interest rate cut to 4.75% to 5%, exceeding the market expectation of 0.25%, marking the first easing policy in four years. Although the market predicts another 0.5% cut in the fourth quarter, the pace of rate cuts may slow due to better-than-expected economic data. The core CPI for September rose to 3.3%, with non-farm payrolls adding 254,000 jobs, both significantly surpassing expectations. The S&P 500 index rebounded from a low of 5186 points on August 5 to 5762 points on September 30, an increase of 11.1%, and successfully broke through 5800 points on October 11.
In the technology sector, ASML’s third-quarter earnings report fell short of expectations, and with the U.S. government potentially restricting chip export permits, Nvidia’s stock price plummeted nearly 5% on October 15. In the presidential election, Donald Trump stated he is no longer willing to debate Harris, with both candidates enjoying a similar level of popularity, and Harris’s popularity slightly higher than Trump’s by 3.3%.
Given the uncertainty of the rate-cutting pace, the impact of policies on chip exports, and the heated election, investors need to closely monitor changes in the U.S. market and make prudent allocations in U.S. stocks.
🇪🇺 Europe-Neutral
European Economic Outlook Unclear with Market Expecting Rate Cuts, Conflicts Continue.
The European MSCI index slightly declined by 0.5% in September. The Eurozone’s GDP for the second quarter grew by 0.6% year-on-year, and the unemployment rate in August was 6.4%, both in line with expectations. The Eurozone’s inflation rate for September dropped from 2.2% in August to 1.8%, falling below 2% for the first time since mid-2021. Christine Lagarde, the President of European Central Bank pointed out that household consumption has decreased, business and housing investments are declining, and demand remains weak. Due to the easing of inflation and a deteriorating economic outlook, the market expects the European Central Bank to cut rates in October.
Additionally, there are signs of escalation in the Russia-Ukraine conflict, further impacting economic growth in the Eurozone. Vladimir Putin, the President of Russia, warned the Western countries on September 25 about the potential use of nuclear weapons. Volodymyr Zelenskyy, the President of Ukraine, visited Washington on September 27 to seek U.S. support and stated that the conflict might end in 2025. Joe Biden promised to provide $7.9 billion in military aid to Ukraine during his term and support its joining of NATO and EU. In the Gaza War, Hezbollah, the Lebanese Shia Islamist political party, confirmed the death of its leader Hassan Nasrallah. The International Monetary Fund warned that conflicts in the Middle East would drive up global commodity prices and increase shipping costs.
Given the unclear economic outlook for the Eurozone and ongoing conflicts, investors should be cautious when investing in Europe.
🇯🇵 Japan-Neutral
Nikkei Index Rebounded, Hovering Around 39,000 Points. Shigeru Ishiba Elected as New Prime Minister
The Nikkei 225 Index plummeted to 31,458 points on August 5 but rebounded to 37,919 points by September 30, marking a 20% increase. It has since started hovering between 38,000 and 40,000 points as of October 4. Japan’s August CPI rose to 3% year-on-year, indicating economic growth. The Bank of Japan stated that the significant decline of the Yen in July has eased, and the inflation risks associated with the weak Yen have also dissipated.
On the political front, Shigeru Ishiba from the Liberal Democratic Party President was elected as the new Prime Minister on October 1 and formed a new cabinet. Ishiba stated that the government’s primary task is to eliminate deflation, promote economic reforms, and narrow the wealth gap. On the diplomatic front, he emphasized strengthening cooperation with China while also asserting Japan’s independence and advancing the modernization of the Self-Defense Forces. On the social front, he aims to address the declining birthrate by expanding family support measures and improving political transparency.
Ishiba hopes for coordination between the central bank and the government to maintain loose monetary policy. The market expects that Ishiba will not hinder the central bank’s rate hikes, with potential increases as early as January next year. However, just eight days after taking office, Ishiba announced the dissolution of the National Diet, the national legislature of Japan, planning to hold elections on October 27 to choose all 465 members of the House of Representatives. Investors should approach the Japanese market with caution.
🇨🇳 China & Hong Kong-Slightly Positive
Central Government Launched Market Stimulus Package, Market Confidence in China and Hong Kong is Gradually Rebuilding
To stimulate the economy, the central government announced three major policy measures on September 24. The central bank cut the reserve requirement ratio by 0.5%, providing approximately 1 trillion Yuan for long-term liquidity to the financial market, and lowered the seven-day interest rate. In the real estate sector, banks will reduce existing mortgage rates to levels close to new mortgage rates and increase the down payment ratio for affordable housing loans. In the stock market, the central government introduced new monetary policy tools, creating swap facilities for securities, funds, and insurance companies, with an initial scale of 500 billion Yuan.
Following the implementation of these policies, market turnover increased, with the CSI 300 index rising from 3,351 points on September 24 to 3,831 points, an increase of 14.3%. The Hang Seng Index rose from 19,000 points to 20,286 points, an increase of 6.8%. During this period, foreign funds flowing into Chinese stocks reached $6.3 billion. As of September 30, the turnover in the Chinese stock market reached 2.4 trillion Yuan, surging over 80% within a week, setting a historical record, indicating the effectiveness of the policies.
This demonstrates that the central government’s market rescue measures are making progress, but it will still take time to rebuild investor confidence in the Chinese market. Investors should pay attention to several important upcoming policy timelines, including the third-quarter economic data on October 18, the National People’s Congress meeting, and the Central Economic Work Conference in December, to inform further investment decisions.
Asia-Slightly Positive
U.S. Dollar Fell, Benefiting Asia and Emerging Markets, But Watch for Diverging Trends and Conflict Impacts
The U.S. Dollar has fallen due to interest rate cuts, benefiting the Asian market. Coupled with renewed attention on the Chinese market, this has created upward potential for Asia and other emerging markets. As of October 9, net inflows into Asia (excluding Japan) increased to $9.228 billion, and the Asia MSCI index rose by 6.4% from September 16 to October 16.
However, investors need to be aware of the diverging trends across different regions in Asia. From September 2 to October 17, the MSCI indices for China, Thailand, and Singapore all saw increases, with China leading at a rise of 21.0%, followed by Thailand and Singapore at 9.7% and 8.2% respectively. In contrast, the MSCI indices for South Korea and India experienced declines of 5.9% and 1.9% respectively.
While the Chinese market is gaining attention, markets like India with higher valuations are showing weaker performance. In early October, $3 billion worth of Indian stocks were sold, causing the rupee to approach historical lows. Additionally, on October 3, geopolitical tensions from Iran’s missile attacks on Israel led to declines in Asian stock markets, indicating that market sentiment is sensitive to conflicts.
Although there has been a recent influx of capital into Asia, investors should remain cautiously optimistic and pay attention to regional trends and the impacts of ongoing conflicts.
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