China Reopens Borders with Hong Kong, Boosting Asia-Pacific Markets

Asian markets traded higher over the weekend as Hong Kong and mainland China resumed quarantine-free travel. This signals the end of the zero-Covid policy which has kept borders effectively closed for nearly three years.

South Korea's stock market had a strong showing today, with the Kospi index rising 2.63% to close at 2,350.19. The Kosdaq index also gained 1.78% to reach 701.21. This was the best performance in the region, and bodes well for the future of the South Korean economy.

Hong Kong's Hang Seng index rose 1.77% in its final hour of trade on the first day of trading after the reopening. Technology stocks led the gains, along with travel and consumer names. In mainland China, the Shanghai Composite rose 0.58% to 3,176.08 and the Shenzhen Component rose 0.62% to 11,450.15.

The S&P/ASX 200 rose 0.6% to finish at 7,151.3 as investors weighed Australia’s disappointing building approvals data. Japan’s markets were closed for Coming of Age Day.

At the end of last week, major indexes in the U.S. saw their first rally of the new trading year. December's nonfarm payrolls came in slightly higher than expected, though wages rose at a slower pace than predicted. ISM's non-manufacturing purchasing managers' index showed a contraction in the services sector - which adds to the hope that the Federal Reserve's rate hikes are making progress in controlling inflation.

Oil prices rose by more than a dollar following an increase in fuel demand outlook due to China’s border-reopening.

Both benchmarks rose by around a dollar. Brent crude futures added 1.36% to stand at $79.64 per barrel. Similarly, the U.S. West Texas Intermediate added 1.31% to $79.61 per barrel.

China and Hong Kong have resumed quarantine-free travel after a three-year hiatus, marking the end of Beijing's zero-Covid policies. This is a significant development for both countries, as it will help boost trade and tourism between them.

Alibaba shares rose 5.8% at the open in Hong Kong, after Jack Ma reportedly gave up control of Ant Group. Ant Group is an affiliate of Alibaba, which holds a 33% stake in the fintech company.

Other technology stocks were also up, with NetEase rising 1.92% and Tencent gaining 1.49%.Casino stocks rose in Hong Kong's first trading session after the city resumed quarantine-free travel with mainland China. MGM China gained 4.52%, Wynn Macau rose 4.25%, Sands China climbed 3.89% and SJM Holdings rose 2.14%.

Consumer stocks helped drive the market higher in Asia today. Anta Sports rose 2.57%, Haidilao rose 2.9%, Xiabuxiabu Catering jumped 6.36% and Budweiser Brewing Company APAC rose 0.37%.

BofA has added a number of biotechnology stocks to its list of top picks for the first quarter. Biotech is a sector that is currently very popular on Wall Street, and BofA believes that these stocks will perform well in the coming quarter.

The bank has selected biotech stocks and some medical technology companies as part of its thematic investing picks on themes related to a "transforming world."

Australia's building approvals fell more than expected in November, according to data from the country's Bureau of Statistics. The decline was driven by a decrease in approvals for private sector houses.

The seasonally adjusted estimate for November showed that total dwellings approved fell by 9% compared with the previous month. This was much further than expectations in a Reuters poll, which had predicted a 1% decline.

Private sector houses saw a 2.5% decrease in approval, while private sector dwellings excluding houses fell by 22.7%.

According to the release, the value of non-residential buildings rose 2%, while the value of total buildings declined 1.5%.

Richmond Federal Reserve President Thomas Barkin said Friday that the central bank has to keep working to bring down inflation, but can do so with a little less intensity.

The central bank official said that inflation is still too high and that additional rate increases are needed this year to bring it back down to the 2% target.

Policymakers said in December that they are likely to raise rates by another percentage point or so before stopping. Atlanta Fed President Raphael Bostic told CNBC earlier in the day that he expects the central bank's benchmark funds rate to rise past 5%, from its current 4.25%-4.5% target range.

Barking did not give a specific number for how high he thinks the rate should go. However, he said that the Fed now has more room to move “more deliberately” after raising rates seven times in 2022.

Mark Mahaney, a top tech analyst, is optimistic about tech stocks after a difficult year in 2022. He believes that the sector is poised for a rebound and that there are many opportunities for investors. Mahaney is a respected voice in the tech community, and his positive outlook is sure to give confidence to many investors.

The analyst recommends that investors remain selective and reveals three top picks for 2023.

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The December jobs report showed that the economy is still adding jobs at a strong rate, but investors are concerned about the slowing rate of wage growth, which could suggest that inflation is ebbing.

After the release of the 8:30 a.m. ET employment report, which showed 223,000 jobs were created in December, stocks rallied. However, average hourly wages only grew at an annual pace of 4.6%, which is less than the 5% expected by economists.

"The key development was that average hourly earnings came in lower than expected. This suggests that investors are closely watching inflation and whether it is moving closer to the Fed's target," said Michael Arone, chief investment strategist at State Street Global Advisors.

However, he also warned that the data could be double-edged, since it suggests that the economy and employment are still strong. This could help keep inflation elevated and keep the Fed hiking more than markets might expect.

The next meeting for the Federal Reserve is scheduled for January 31st and February 1st. Some economists are predicting that the interest rate will be raised by a half point, while traders in the futures market are anticipating a smaller increase of only 25 basis points. It's important to note that a basis point is equal to 0.01 of a percentage point.

"Data like today's suggests that the Fed could do 50 basis points," said Arone. A more aggressive Fed could create more market volatility, but it could also help to boost the economy.

The Federal Reserve has been working to slow down the economy and the hot labor market by raising interest rates. The fed funds target rate is now 4.25% to 4.50%.

Peter Boockvar, chief investment officer at Bleakley Financial Group, said that the jobs report did not change market expectations, and that the fed funds futures contract for February was still pricing in another 32 basis points of hikes.

"The market is still expecting the Fed to raise rates by another 60-70 basis points," said Boockvar. "The end point for the Fed matters more than if it raises by 25 basis points or 50 when it next meets."

According to Goldman Sachs, shares of legacy automakers and parts manufacturers will attract new investors as they transition toward electric vehicles and green technologies. This shift will provide opportunities for these companies to tap into new markets and grow their businesses.

As traditional auto companies increasingly focus on developing new carbon-neutral technologies, they are likely to see a corresponding increase in their inclusion in ESG funds and a boost to their share prices, according to the Wall Street bank.

According to the investment bank, there are 13 stocks that will benefit from the new trend. One of these stocks is expected to have over 100% upside.

The services sector contracted in December amid a pullback in new orders and production, according to the Institute for Supply Management. This sector is a key part of the economy, and the contraction is a sign that economic growth may be slowing.

The ISM Services index fell to 49.6% for the month, well below the Dow Jones estimate for a 55.1% reading. The gauge measures the percentage of businesses reporting expansion, with a reading below 50% indicating contraction. This is the first time the index has fallen below 50% since February 2016, indicating that the service sector is starting to contract.

New orders decreased significantly, by 10.8 percentage points, while business activity and production also declined by 10 points. Prices fell by 2.4 points to 67.6%, which is still a high number but indicative of some easing in inflation. Employment also decreased, by 1.7 points to 49.8%, which puts it into contraction territory.

Goldman Sachs chief economist Jan Hatzius said Friday that December's employment report helps add to the narrative that the U.S. may be able to avoid a recession.

Hatzius said that the economy is growing at a below-trend pace, which is necessary to rebalance it. He added that wage growth is gradually decelerating, and price inflation is pretty quickly decelerating. According to Hatzius, this is encouraging for a soft landing.

After the Labor Department reported an increase in nonfarm payrolls and a rise in average hourly earnings, he spoke. This was the slowest pace for the latter metric since August 2021.