China, Hong Kong stocks stable amid mixed economic signals

China shares: The stock markets in China and Hong Kong displayed relative stability on Friday as investors grappled with mixed economic data. The key focus remains on the looming possibility of a crucial policy rate cut expected early next week.

During the midday session, China's blue-chip CSI300 Index dipped by 0.2 per cent, while the Shanghai Composite Index remained largely unchanged. Similarly, Hong Kong's benchmark Hang Seng Index showed little movement.

The economic data released on Friday showed that China's exports saw 2.3 per cent growth in December from the previous year, signaling a potential turning point for global trade. However, concerns persist as China's consumer prices declined for the third consecutive month in December, albeit at a moderated pace. Factory-gate prices continued their downward trend, underscoring persistent deflationary pressures in an economy grappling to establish a robust recovery.

UBS analysts noted, "Consumption will likely pick up into the Lunar New Year, but more stimulus is needed to boost household spending and eliminate deflationary pressure."

Market participants are increasingly anticipating a key policy rate decision on Monday, which could potentially stimulate demand and contribute to the economic recovery of the world's second-largest economy. Ken Cheung Kin Tai, Chief Asian FX Strategist at Mizuho Bank, commented, "The lingering deflationary pressure justifies the expectation of an imminent rate cut, which is widely expected to materialise in the one-year medium-term policy facility (MLF) yield decision next Monday."

In terms of sector performance, artificial intelligence (AI) shares faced a 1.7 per cent decline, while utility stocks saw a 0.9 per cent increase.

In Hong Kong, the Hang Seng Tech Index experienced a 0.3 per cent drop, influenced by a downturn in electric carmakers. Xpeng and Li Auto registered declines of 4.8 per cent and 2.8 per cent, respectively.

As investors await the policy rate decision, the market remains cautious, navigating through the complexities of economic data and potential policy shifts that could impact the trajectory of both the Chinese and Hong Kong stock markets.

(With Reuters inputs)