Chinese Tech Stocks: A Promising Comeback?

Recently, Federal Reserve (Fed) Chair Jerome Powell delivered a smooth testimony regarding the current state of the economy and monetary policy. He highlighted that the Fed's policy stance has become considerably less restrictive, emphasizing that the economy remains robust. Powell expressed that there is no urgency to change their policy stance, which aligns with his previous statements. In his remarks, he sought to avoid political discussions, noting that it’s not the Fed’s role to comment on tariff policies. He acknowledged that while the impact of tariffs is uncertain, they could potentially increase inflationary pressures later on.

The market reacted modestly to Powell's statements. U.S. yields saw a slight increase. However, the dollar index lost some of its gains and moved below the 50-day moving average. In terms of stocks, the Dow Jones rose by 0.30%, the S&P 500 remained flat, while the Nasdaq 100 experienced a small decline.

Attention is now turning to the upcoming U.S. inflation report. Expectations indicate that the headline inflation rate may stabilize around 2.9% year-on-year in January, with core inflation possibly dropping from 3.2% to 3.1%. If the inflation numbers come in softer than anticipated, it could ease inflation concerns, potentially leading to a further decline in the U.S. dollar and fostering positive movement across major currency pairs. Conversely, stronger-than-expected inflation figures could reignite worries, contributing to higher U.S. yields and a stronger dollar, which may dampen overall market risk appetite.

Revival of Chinese Tech Stocks

Chinese tech stocks are witnessing renewed interest, exemplified by the performance of Alibaba, which has surged over 40% since mid-January. Additionally, BYD, a company backed by Warren Buffet, saw an increase of more than 7.5% in Hong Kong, marking a total rise of around 42% over the past month. The optimism surrounding these companies is buoyed by news of BYD's plans to incorporate software from DeepSeek into its vehicles and its announcement to offer its God’s Eye driver assistance system for free in China.

This helps enhance the outlook for this Chinese electric vehicle (EV) giant as it begins to close the gap with Tesla, which has been struggling due to slowing sales attributed to waning global demand for electric cars and Elon Musk's controversial political engagements.

The stock market in Hong Kong appears more promising than it has in some time, suggesting substantial room for further gains as it approaches the peaks seen in 2018 and 2021. Chinese tech giants benefit from two key advantages: they possess established Big Tech brands with a history of revolutionary technology, such as Alibaba and Tencent, and Chinese consumers are generally quick to adopt new technologies, facilitating faster tech advancements.

However, the question remains whether these advantages can outweigh the existing political, geopolitical, and trade uncertainties faced by these companies. Only time will provide clarity on this matter.

Oil and Gas Market Update

In other news, U.S. crude oil prices surged past the 50-day moving average but then pulled back after reaching $73.70 per barrel yesterday. The recent report from the American Petroleum Institute (API), which indicated a build in U.S. inventories exceeding 9 million barrels, dampened the initial enthusiasm. The recently breached 50-day moving average might serve as short-term support for extending gains in the near term, although a strong resistance point is approaching at around $74.50, near the 200-day moving average and a major 38.2% Fibonacci retracement level from the recent downturn.

In Europe, natural gas futures continued to gain momentum due to depleting gas reserves and the impending cold weather that is expected to further lower these reserves. Meanwhile, U.S. natural gas futures are maintaining a positive outlook as they hold near a critical Fibonacci support level.

Focusing on individual companies, BP experienced more than a 7% gain following the announcement of Elliott Investment Management stepping in to improve company operations. However, BP saw a slight drop of 0.62% yesterday after revealing a 35% decrease in income last quarter due to falling oil and gas prices, alongside diminished refinery profits. Investors might find the 430-445p price range a potentially interesting entry point, considering Elliott’s strategy to shift focus from renewables towards traditional energy sources.

Tech, Stocks, Inflation, Economy, Oil