We've had conflicting currents washing over Asian markets of late, but Friday has been a particularly strong day, driven by Chinese tech and some eye-popping single-stock advances.
The Hang Seng Tech Index in Hong Kong averaged a double-digit gain, ending the day up 10.0%. That made Hong Kong the strongest market in Asia on Friday, with the broad Hang Seng posting a 4.0% rise. It's the strongest showing for the Hong Kong market since mid-March and reverses the damage done in other sessions this week.
Chinese tech got a strong start from Wall Street's showing overnight, with several dual-listed companies among the top performers. But investors in Asia then began to focus on suggestions that the tech crackdown may be easing in China.
Officials on Friday pledged to soon "complete the special rectification" of what Beijing calls the "platform economy" of Web- and app-based businesses. The wording has changed, with "complete" replacing a commitment to "steadily advance" Big Tech reform.
Chinese officials have also given further reassurances that they will be able to reach a deal with U.S. regulators that will allow Chinese companies to remain listed in the United States.
Alibaba Group Holding ( (BABA) and HK:9988) is the Hang Seng's top performer today, leaping 15.7%. Alibaba's largest e-commerce rival JD.com ( (JD) and HK:9618) matched that, also ending the day 15.7% higher.
Grocery delivery app Meituan (MPNGY and HK:3690) saw the third-largest gain, notching a 15.5% bounce.
The top five rounds out with other Chinese megacaps: the Alibaba online clinic Ali Health (ALBBY and HK:0241) ended up 12.9%, and the WeChat app and videogame developer Tencent Holdings ( (TCTZF) and HK:0700) was up 11.1%.
Videogame maker NetEase ( (NTES) and HK:9999) rose 7.7%, while smartphone maker and lifestyle brand Xiaomi (XIACY and HK:1810) added 7.4%.
Such tech megacaps have been the main target of Beijing's ire during a crackdown that has called them out, fined them and forced them to stop anticompetitive and monopolistic tactics.
The CSI 300 index of the largest mainland-listed companies was slow to participate, even posting a slight loss at the lunch break. But performance was exceptionally strong in the afternoon session, leading to a 2.4% climb by the close.
Here's what changed
The impetus was the Politburo, the top decision-making body of the Chinese Communist Party, which released a summary of its meeting on Friday during that lunch break. There are further promises of monetary policy support, tax cuts and measures to prop up capital markets.
The readout says it is "necessary to respond to market concerns in a timely manner," reform the stock listing system, encourage long-term investing "and maintain the stable operation of the capital market." The Politburo also pledges to stave off systemic risk, a factor that is worrying investors.
The meeting decided that a relief package will be necessary to support small and midsize businesses as well as households "severely affected by the epidemic," adding that it is necessary "to give full play to the leading role of consumption in the economic cycle."
Generally, though, there are few specifics, and the Chinese Communist Party is falling back on its favorite stimulatory tactic, infrastructure spending. Chinese President Xi Jinping stressed at an economic planning meeting earlier this week that Beijing will boost infrastructure construction spending in a bid to revive domestic demand and spur growth. The message was repeated today. Transportation, energy and water infrastructure, particularly green- and low-carbon projects, will be key points of attention.
This old playbook may no longer work as well as it once did. For starters, China already has plentiful infrastructure, so the incremental boost is limited. Then the economy is also increasingly driven by services and consumer spending, not heavy lifting and building Big Things. Last, the economy is currently hamstrung by the localized COVID lockdowns implemented across the country.
In all, 46 Chinse cities are either fully or partially locked down. Nomura estimates the restrictions on movement cover 343.5 million residents and parts of the country that account for 35% of the economy.
It doesn't help to promise to build a hydroelectric dam if workers can't get to the construction site. It doesn't help to build new roads and airports if no one is allowed to use them. The Politburo meeting, led by Xi, reaffirmed the need to sustain a "zero COVID" approach.
Business sentiment has taken a bashing. Beijing's crackdown on Big Tech, "excessive incomes" and the "disorderly expansion of capital" had also started to resemble an assault on private, for-profit companies, particularly entrepreneurs. The slate of Communist reforms has been downplayed given the current concerns facing the top leadership. It has made it a point of pride to control the coronavirus at all costs, but that is resulting in logistical logjams, trucks without drivers, and furious Shanghai citizens complaining they don't have enough food.
Counting the COVID costs
The costs to the economy are mounting as a result. Investors therefore appear to have grown a little weary of Beijing's efforts to talk around Chinese markets. They've shown little confidence that the current COVID outbreak causing a five-week lockdown in Shanghai is about to ease, and there's fear the lockdowns will not only spread but also be repeated.
There is therefore skepticism that Beijing can achieve its targeted growth in 2022 of "around 5.5%." Economists have been downgrading their forecasts heavily and fast.
Independent research house T.S. Lombard has cut its prediction for Chinese GDP to "less than 4%" this year. "More stimulus is coming," head of China and Asia research Rory Green concedes in a report China Trouble. "However, the efficacy of monetary and fiscal easing is heavily constrained by COVID-19 outbreaks and structural headwinds."
Not all officials are obsessed with infrastructure. The cities of Shenzhen and Ningbo, both major ports, on Thursday started giving residents shopping and dining gift certificates in a bid to boost consumer confidence and spending. Other large cities may follow suit.
The vast majority of COVID cases in China remain in Shanghai, where the case count rose once more on Friday, to 15,032 cases. The Shanghai count hit a weeks-long low of 10,622 on Thursday. Although there are signs infections have peaked, the numbers are volatile.
Outbreaks continue to bubble away in Jilin and Jiangxi provinces. Beijing is consistently reporting around 50 new COVID cases per day, with 51 reported on Friday on top of 51 on Thursday, and is attempting to keep the count low through repeat testing and increasing restrictions on movement.
Beijing has not yet locked down like Shanghai, which would deliver another knock to the economy. But the Chinese capital has been imposing more and more restrictions, with schools closed early ahead of a week-long vacation, while an increasing number of malls, gyms, salons and cinemas are shuttered.
China's two largest cities account for 7.3% of the country's entire output. But restrictions on the two mega-conurbations spill far beyond their municipal borders; Lombard's in-house tally of road transport shows it has fallen 40% nationwide.
"China is stuck," Green states. "The desire to prevent a COVID-19 disaster is clashing with the political imperative of generating decent growth in 2022. We think that growth gives."
Mainland stocks will be closed much of next week for the Labor Day holiday. Trading in Shanghai and Shenzhen will only resume on Thursday, while Hong Kong will have a holiday on Monday but resume trading on Tuesday. Trading was closed in Japan on Friday for the Showa Day holiday but will resume on Monday.