Tech stocks surge lifts Hong Kong but Asia rally stutters on China data

HONG KONG, China  -Hong Kong rose Monday on hopes Beijing has ended its long-running crackdown on the tech sector but an early Asia-wide rally was staunched by inflation data showing further weakness in China’s economy.

After a years-long probe Ant Group was hit with a near $1 billion penalty for “illegal acts”, while Tenpay was ordered to pay more than $400 million.

However, analysts said that while the figures were big, traders were cheered by the prospect that the firms could again concentrate on their business.

In a statement, the China Securities Regulatory Commission said “at present, most of the outstanding problems in the financial business of platform enterprises have been rectified”.

The news, which was announced Friday, saw the New York-listed shares of Alibaba and Tencent surge, and their Hong Kong stocks followed suit Monday.

“The market likes it because scrutiny looks likely to be over and the fine, though big in absolute terms, is very manageable for such a big company,” Vey-Sern Ling, at Union Bancaire Privee, said referring to Ant.

The fine is less than Ant’s profit in the December quarter, Bloomberg News said.

In a sign of the impact the investigation has had on the industry, Ant said it aimed to repurchase up to 7.6 percent of its equity in a move that values it at less than a quarter of what it was in 2020.

That was when the Alibaba affiliate tried to launch an initial public offering in Hong Kong that was thwarted by China.

The surge in market heavyweight tech firms lifted the Hang Seng Index more than two percent at the open, while there were also gains in Shanghai.

However, the advances were pared by data showing Chinese consumer inflation was flat last month and producer prices sank, indicating the world’s number two economy continued to struggle.

“The dreaded fear of a deflationary spiral in China has reached ‘code red’ where the latest consumer inflation rate for June has flattened,” said OANDA’s Kelvin Wong.

“Time is running out for Chinese policymakers to negate the steepening rout in the internal demand environment that can potentially lead to further loss in consumer and business confidence if the deflationary spiral starts to be persistent.

“It may lead to a liquidity trap scenario in China where monetary policy tools will be less effective to stimulate real economic growth.”

There were also gains in Mumbai, Singapore, Manila, Jakarta and Bangkok, but Tokyo, Sydney, Seoul, Taipei and Wellington were in the red.

London, Paris and Frankfurt edged up in the morning.

A mixed US jobs report Friday left Wall Street’s three main indexes lower, with data showing fewer jobs were created last month than were forecast but wage growth remained strong, putting upward pressure on inflation.

The 209,000 reading for June was well down from May’s 306,000 but observers said it was still robust and would not likely deter the Federal Reserve from resuming its rate hike campaign this month.

“The US labour market is finally easing but not fast enough to stop the Federal Reserve resuming interest rate hikes in July,” said Mansoor Mohi-uddin at Bank of Singapore.

But he added that “slowing payrolls and easing inflation should let the Fed keep interest rates unchanged after July for the rest of 2023”.

Traders did take heart from a broadly positive visit to China by US Treasury Secretary Janet Yellen at the weekend, which she said helped put ties on “surer footing” after years of fraught relations.

“On both sides, the sentiment that was expressed is that the world is big enough for both of our countries to thrive, to cooperate on shared global challenges, to have a meaningful economic relationship and that we needed to stabilize our relationship to make sure that we were able to accomplish that,” she told CBS News.

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