Asia Day Ahead: Chinese equities diverge from the region, Hang Seng on watch

Asia Open

The Asian session was met with a negative open into the new trading week, with Nikkei -2.20%, ASX -1.39% and KOSPI -0.23% at the time of writing. The lead-up to the upcoming US consumer price index (CPI) has seemingly struck a more cautious tone across the region, while risk sentiments took its cue from the downbeat handover from Wall Street last Friday for some unwinding. That said, resilience was seen in Chinese equities, with the Hang Seng Index (HSI) edging more than 1% higher in today’s session, presenting a divergence from the rest. The Nasdaq Golden Dragon China Index managed to close in the green last Friday, edging 0.7% higher despite the broad de-risking in its US counterparts.

Economic data to digest: China’s inflation, Japan’s GDP

Over the weekend, China’s February consumer inflation data revealed an upside surprise at 0.7% increase year-on-year (versus 0.3% consensus), exiting from deflationary territory for the first time in five months. But given that this is heavily attributed to seasonal holiday spending during the Lunar New Year, sustenance over the coming months will be key to prove that the recent strength is not a one-off. Failure to see further follow-through could see optimism fade, as per past instances presented over the past one year.

Market participants also have Japan’s final 4Q gross domestic product (GDP) read to digest this morning, with the country evading a technical recession for now with an upward revision to 0.1% month-on-month versus the previous 0.8% contraction. Nevertheless, the below-expected read highlights prevailing economic risks, which could make Japanese policymakers think twice for an earlier stimulus exit. Thus far, the odds of a policy move in the upcoming March meeting was seen as almost a coin flip, making it a ‘live’ one.

What to watch: Hang Seng Index (HSI)

The HSI has shown some signs of near-term recovery, displaying a series of higher highs and higher lows since January this year. One may argue that an inverse head-and-shoulder pattern may be forming, leaving one to watch for any potential break of the neckline at the 16,900 level. Failure to do so may still keep the broader downward trend intact, with the 16,100 level serving as immediate support to watch in this case. For now, buyers are also seeking to defend its daily relative strength index (RSI) above the key 50 level to retain control.