Equities: Markets rebound on tariff pause, but trade worries persist
Markets rebound amid tariff volatility. After one of stock market’s worst weeks this century, global equities rebounded sharply (+3.4%) but remained volatile amid escalating US-China tensions with US consumer sentiment falling to its lowest in nearly three years. Surging inflation expectations and rising Treasury yields added pressure as the Fed signalled caution amid heightened economic uncertainty. Against this backdrop, the S&P 500 rose 5.7%, marking one of its strongest weekly performances this year, while Europe's STOXX 600 declined 1.9% amid intensifying trade concern. Over in Asia, tariff impacts weighed heavily on Chinese equities with the HSCEI and Hang Seng indices down 7.3% and 8.5% respectively. However, declines were partially offset by investor optimism that Beijing might introduce further stimulus measures to support economic growth amid the escalating trade conflict. Japan's Nikkei-225 ended the week down just 0.6%, benefitting from the US announcement that tariff rates on most trading partners, including Japan, would be reduced to 10% for a 90-day period, a significant relief from the previously applied 24% levy.
Topic in focus: China market – Southbound surge and buybacks buffer tariff shock. The China market was massively influenced by the US administration's extensive list of trade tariffs. Although a big part of the proposed tariffs was deferred for another 90 days, this has already introduced heightened volatility across regional markets in Asia, erasing earlier YTD gains. Notably, the Hang Seng Index (HSI) experienced a sharp 13.2% drop on 7 Apr 2025, marking its largest single-day decline of the year. Concurrently, efforts to stabilise the market have intensified with the "national team" (including Central Huijin) intervening to reduce volatility. Meanwhile, the State-owned Assets Supervision and Administration Commission (SASAC) has endorsed SOEs expanding share buybacks to protect shareholder value and bolster market confidence. Also, in recent weeks, southbound flow has surged with YTD average daily purchases reaching HKD23.8bn, 2.8x above the daily average of HKD8.6bn in 1H24. This marked increase in liquidity was aimed to support market sentiment amid escalating external headwinds. Meanwhile, Hong Kong’s market share buybacks rose 1.1x in 2024 to a record high of HKD265.7bn, reinforcing commitment among corporates to stabilise investor confidence and market conditions.
Amid escalating tariff tensions and external shocks, we anticipate that China will intensify its focus on domestic demand through a combination of cyclical and structural policy measures. With accelerating fiscal support and targeted leverage, China aims to stabilise its economy while fostering consumption. We maintain convictions on mainland large cap industry leaders (including beneficiaries of domestic consumption) and dividend yielding names.
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