• Hong Kong’s Hang Seng Index sheds 5% in Monday morning trade
  • The S&P/ASX 200 is up 1.5%, tracking the US gains from last week
  • Will Australian stocks continue to trail a US resurgence or be weighed down by the negative sentiment in Asia?

Hong Kong

Hong Kong’s flagship stock market reference, the Hang Seng Index, is lower by over 5% on Monday. As the premier trading hub in Asia, Hong Kong has suffered mightily under the labour and people movement restriction policies enacted in the name of COVID. Hindered movement and hampered productivity have dulled the shine on this Asian centre of commerce.

Chairman Xi Jinping outlined a focus on foreign policy and national security for the next five years during the recent CCP congress. Hong Kong has long profited from its position as the Western gateway to China. Lowered traffic under the premise of higher security dampens its outlook. This perception sent Hong Kong shares sharply lower on Monday.

The US markets

US Stocks and debt securities have been weighed down in 2022 by deflationary policy actions enacted to rein in high prices. Any suggestion that debt markets are normalising has loosened the shackles on equity markets.

As is the case for Friday, a slight uptick in the yield on the US 10-year Treasury bill combined with a decline in the 2-year raised hopes that there is still life in the short-term economy.

Some selling in the otherwise hot US heating oil and onshore gas markets added fuel to a deflationary picture that investors are itching to paint.

 

Top Australian Brokers

 

The US S&P 500 and NASDAQ were both higher by 2.3% to close the day on Friday.

Australian impact

Shrugging off the China market woes, the Australian market followed the US market higher on Monday morning. The benchmark S&P/ASX 200 index was up by over 1.5% by midday.

Australia’s unique positioning as a Western nation squarely in the Asian economic sphere has investors balancing several macroeconomic forces.

To a degree, the technology miracle of Silicon Valley has been replicated on these shores with names like Afterpay ASX:SQ2 (SQ2), Xero ASX:XRO (XRO) and Atlassian NASDAQ:TEAM (TEAM).

Though successful, these companies have not been able to take advantage of their geographical location to have the same success in Asia as their resource counterparts. Australian tech relies heavily on domestic, European, and US customers for its revenue streams.

As Australia’s largest trading partner, China looks to be taking a new direction under the next administration cycle. Could the long secure revenue streams of our largest miners in Fortescue ASX:FMG (FMG), BHP Billiton ASX:BHP (BHP), and Rio Tinto ASX:RIO (RIO) be in jeopardy?

Outlook

Long investment horizons in mining plays will outlast multiple CCP congress cycles. The nature of the technology sector is such that it picks winners and losers seemingly overnight.

Recently the day-to-day fluctuations in our stock market have tracked the overnight gyrations in the US stock market. Our longer-term prospects will be determined a little closer to home.