Hong Kong stocks surge as China's economic prospects brighten

[WORLD] In recent trading sessions, Hong Kong stocks surged to three-year highs, propelling Asian markets upwards, with investors turning optimistic about the economic recovery in China. The outlook for the world's second-largest economy has become notably brighter, as recent data and government measures to support domestic consumption have had a positive impact. Among the notable moves, the New Zealand dollar (NZD) saw a significant jump, and the Chinese yuan has remained strong.

Hong Kong’s Remarkable Gains

On March 18, 2025, Hong Kong’s Hang Seng Index rose by 2% in the morning session, continuing its impressive growth. The year-to-date gain of 23% for the index is now the largest among any major market globally. As investors have shifted their focus toward China’s economic recovery, the Hang Seng has benefited, reflecting a more optimistic sentiment toward Asia's largest economy.

China’s Positive Economic Data

The renewed optimism is largely driven by recent economic data from China, which has outperformed expectations. Retail sales growth in China accelerated in January and February 2025, signaling that the nation’s consumption-driven economy is gaining momentum. On top of this, the Chinese government introduced new policies aimed at boosting domestic consumption, including childcare subsidies and a comprehensive "special action plan" to further support this growth.

Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore, commented on the shifting market sentiment, noting, "Momentum and sentiment (is) shifting now as well in a positive way." This shift comes after China’s proactive measures and the government's promises to stimulate consumption, which have instilled confidence in investors.

Impact on the Kiwi and Australian Dollar

The New Zealand dollar, often viewed as a proxy for China’s economic performance due to the country's significant food exports to China, surged to a three-month high of $0.5827. Investors were quick to cover short positions, capitalizing on the renewed confidence in China’s growth outlook. The Australian dollar, similarly sensitive to Chinese demand, also rose, reaching a one-month high just under $0.64.

As the demand for commodities and agricultural products from China strengthens, currencies tied to its economy, like the Kiwi and Aussie dollars, have been able to thrive. The positive outlook for China’s recovery has been seen as a catalyst for these gains, as the global market views China as a critical player in driving regional economic stability.

The Chinese Yuan: Steady Performance

The Chinese yuan has also been performing strongly, hovering near its strongest levels of the year. This is another signal that investors are increasingly confident in the Chinese economy, buoyed by the country's steady recovery and policy support. As China continues to regain its economic footing, the yuan's performance suggests growing stability in the nation’s financial markets.

Hong Kong Dollar and Interbank Rates

In addition to the Hang Seng's performance, the Hong Kong dollar has been relatively stable, staying within the strong half of its trading band against the US dollar. Furthermore, Hong Kong interbank rates have been falling, indicating the increased inflow of funds into the financial hub. This continued strength is reflective of the broader confidence in Hong Kong’s economy, which benefits from its close ties to mainland China.

Regional Market Performance: A Broader Upswing

Across the broader Asian region, Hong Kong was not the only market benefiting from the positive China outlook. Markets in Seoul, Sydney, and Taipei also saw gains, reflecting regional optimism. Japan's Nikkei 225 index bounced back by 1.5%, on track for its sharpest rise in three weeks. Additionally, the MSCI Asia-Pacific index rose by 1%, signaling a general sense of positive momentum across the region.

Wall Street and Global Impact

Meanwhile, in the United States, the stock market remained stable, with some caution ahead of April, when President Donald Trump's reciprocal tariffs are set to take effect. This looming policy decision has created uncertainty in global markets, particularly concerning trade between the US and China.

Despite this, the global market remains focused on Asia, particularly China. Many analysts have indicated that China stands to benefit from the US's trade policies, with fears of a US slowdown pushing investors to look elsewhere. The OECD’s recent forecast suggests that the US tariffs could weigh on growth in North America, yet China’s recovery presents a contrasting picture of potential growth in Asia.

Gold and Other Commodities

As the US dollar weakened, particularly after softer-than-expected retail sales and factory activity data from the US, gold experienced a surge, reaching a record high of $3,005 an ounce. The precious metal's rise was fueled by the growing demand for safe-haven assets amidst global uncertainties. Additionally, the euro and sterling saw strength, supported by ongoing concerns about the US’s economic trajectory and political developments.

The Road Ahead: Key Factors to Watch

Looking ahead, investors will closely monitor the Federal Reserve’s upcoming meeting and the outcome of a key phone call between President Trump and Russian President Vladimir Putin. Market sentiment will likely be influenced by these developments, as global trade dynamics continue to shape the investment landscape.

For Asia, however, the key factor driving market optimism remains China. The country's proactive measures to support domestic consumption and the promising economic data have provided a strong foundation for further growth. In turn, this has had a ripple effect on regional markets, with Hong Kong, New Zealand, and Australia all benefiting from the brighter outlook.

The performance of Hong Kong stocks and the rise of the Kiwi dollar are a testament to the positive outlook for China’s economy. As the second-largest economy in the world rebounds, investors have renewed confidence in the region, driving stock market growth and strengthening related currencies. With supportive government measures and strong economic data, China’s recovery is not only benefiting its own markets but is also having a broader, positive impact on the entire Asia-Pacific region.

As Nick Ferres from Vantage Point Asset Management summarized, "Momentum and sentiment (is) shifting now as well in a positive way." With sustained confidence in China’s economic prospects, it is likely that this upward trend will continue to influence regional markets for the foreseeable future.