KGI Asia Commentary

Hang Seng Index rose 52 points on Thursday

The Hang Seng Index opened 152 points higher at 18,577 points. It rose 52 points or 0.3% throughout the day to 18,477 points. The HSCEI Index rose 12 points, or 0.2%, to 6,555 points; the Hang Seng Technology Index rose 33 points, or 0.8%, to 3,840 points. The total daily turnover of the market was 114.5 billion yuan. Chip-related stocks performed well, with SMIC (981) rising 5.6% and Hua Hong Semiconductor (1347) rising nearly 8%. NetEase (9999)'s share price rose nearly 3.3%. In addition, market expectations for interest rate cuts have increased, with SPDR Gold ETF (2840) rising 1.2% to HK$1,707.

Europe announced 25bps rate cut but while a hawkish statement in press release

The ECB announced an interest rate cut yesterday as expected by the market but stated an rate cutting period has not been confirmed which tried to adjust the market's consensus of a significant interest rate cut. The ECB announced its June interest rate decision at 8:00 Hong Kong time yesterday, which was the first time since 2019. It is the second central bank among G7 members to cut interest rates after Canada. The ECB stated that it would not make a promise to any specific path. This interest rate cut was only a moderate adjustment of monetary policy restrictions after maintaining high interest rates for nine months to regulate the regional economy. In addition, the ECB raised its GDP growth and inflation forecasts for 2024. The economic growth rate is 0.9%, compared with the 0.6% estimate in March; the inflation rate is 2.5%, compared with the 2.3% estimate in March.

Among the three major U.S. stock indexes, only the DJIA rose 78 points, or 0.2%, to close at 38,886; the Nasdaq composite fell 14 points, or 0.1%, to close at 17,173; the S&P 500 fell 1 point, or 0.02%, to close at 5,352.

Lagarde stresses that the rate cuts will be bumpy in the 2H24

ECB President Lagarde attended a press conference after Thursday's interest rate meeting. Apart from the only a single rate cut decision as mentioned above, the road to interest rate reduction in 2H24 is still challenging. She emphasized that core inflation fell in April and price pressures gradually decreased. However, overall inflation is still clearly hovering above the 2% long-term target. It is expected that it will fluctuate at the current level for the rest of this year, and then gradually drop to the long-term level in the 2H25 Target. For the labor wage, an important factor driving core inflation, Lagarde pointed out that they are still rising at a relatively high rate and are driving service prices. In the first quarter of this year, negotiated wages in the euro zone increased by 4.7% annually, higher than the 4.5% in the fourth quarter of last year. Labor costs may fluctuate in the short term, but the ECB maintains that wage growth is on a downward trend.

The net inflow of Southbound Hong Kong stock connect on Thursday was HK$3.67bn, of which China Mobile (0941) had the largest inflow, reaching HK$750mn; followed by CNOOC (0883). Kuaishou (1024) recorded the largest net outflow of HK$310mn; followed by Industrial and Commercial Bank of China (1398).