KGI Asia Commentary

Hang Seng Index fell 315 points on Wednesday

The Hang Seng Index fell 315 points or 1.6% to 19,115 on Wednesday. HSTECH fell 76 points or 2.0% to 3,775 and HSCEI fell 125 points or 1.9% to 6,478. Daily market turnover was HK$97.96bn.

Dow drops 255 points as debt talks continue

The Dow ended lower for a fourth straight day on Wednesday as lawmakers struggled to find a breakthrough in debt-ceiling talks, stoking fears of the first U.S. default in more than 40 years. House Speaker McCarthy said he and President Joe Biden remained "far apart" on a number of issues to break the deadlock in reaching an agreement to raise the debt ceiling. McCarthy also said he was confident the negotiating team would make progress Wednesday. The Dow Jones Industrial Average fell 255.59 points, or 0.77%, to close at 32,799.92. The S&P 500 lost 0.73% to close at 4,115.24 and the Nasdaq Composite lost 0.61% to close at 12,484.16. U.S. Treasury Secretary Janet Yellen previously warned members of Congress that there was a "significant" chance of a default in early June. She noted Wednesday that she has seen "some stress in financial markets" amid growing fears that the U.S. could default for the first time in history. Shares of Analog Devices fell 8% after the earnings report. The semiconductor maker's fiscal third-quarter guidance came in weaker than expected, even as second-quarter revenue and profit topped estimates. Shares of Tesla were down about 2% in midday trading. Disappointing quarterly results from Chinese rival Xpeng Motors sent electric vehicle stocks lower. Xpeng’s revenue missed expectations and its losses exceeded analysts’ expectations. The company also forecast a decline in vehicle deliveries. Shares of apparel retailer Abercrombie & Fitch soared 31% after the company reported first-quarter earnings and revenue that beat analysts' expectations. The apparel retailer also issued strong guidance for its fiscal second quarter and full year. Shares of Kohl's soared Wednesday after the struggling retailer reported a surprise profit and confirmed its full-year guidance as it seeks to turn around losses. Shares of the company closed up more than 7% on Wednesday. Nvidia reported stronger-than-expected earnings for the first quarter of fiscal 2024 on Wednesday, sending the company's shares up 24% in after-hours trading. Fears of a default have weighed on market sentiment and overshadowed further signs that the Federal Reserve may pause rate hikes in June.

Fed officials less confident about need for further rate hikes, minutes show

Minutes of the meeting released on Wednesday showed that Fed officials were divided on the direction of interest rates at their last meeting, with some members seeing the need for further rate hikes and others expecting slower economic growth to eliminate the need for further monetary tightening. Whether to raise rates at the next meeting will ultimately depend on incoming data, the minutes showed. The minutes of the Federal Reserve meeting showed that when discussing the policy outlook, participants generally believed that given the lagged effect of the cumulative tightening of monetary policy and the potential impact on the economy of further tightening of credit conditions, the appropriateness to which additional increases in the target range may be appropriate after this meeting had become less certain.

Hong Kong Stock Connect had a net outflow of HK$3.49bn on Wednesday, of which Tencent (700) had the largest net inflow, reaching HK$0.23bn; followed by Li Ning (2331). Tracker Fund (2800) recorded the largest net outflow at HK$2.75bn, followed by HSCEI ETF (2828).