U.S. Midterm Results Weigh on Asia Markets; China’s Producer Prices Drop

Stocks in the Asia-Pacific region were mixed on Wednesday, as investors digested the results of the U.S. midterm elections and China's producer prices fell for the first time in October since December 2020.

The Hang Seng index in Hong Kong fell by 1.62% on Wednesday. In mainland China, the Shanghai Composite index was down by 0.53% while the Shenzhen Component index was 0.79% lower. The Chinese yuan weakened past 7.25-levels against the U.S. dollar after the latest economic data release.

The Nikkei 225 in Japan lost 0.56% to end the session at 27,716.43, while the Topix shed 0.41% to close at 1,949.49. In South Korea, the Kospi gained 1.06% to close at 2,424.41. In Australia, the S&P/ASX 200 rose 0.58% to end its session at 6,999.3.

U.S. stocks are coming off three-straight days of gains after a volatile night on Wall Street. The bounce for equities may be partly due to the elections, where investors are expecting Republicans to gain ground and create gridlock in Washington.

The Hang Seng Tech index fell 2.6% in Hong Kong as investors reacted to the results of the U.S. midterm elections and brace for heightened scrutiny on Chinese tech firms.

Technology stocks listed in Hong Kong took a sharp dive in afternoon trading, with Tencent falling 4.48% and Meituan losing 4.5%. Alibaba's Hong Kong-listed shares also fell 2.61%, and Xiaomi fell 2.07%.

Electric vehicle makers were also hit hard by the sell-off, with BYD falling 6% and Xpeng dropping more than 7.2%. Nio was down 5.5%.

According to Natixis, semiconductor companies in Taiwan and South Korea may benefit from a Republican congressional sweep. This could provide a boost to the industry, as the Republican party is generally supportive of business interests.

If the Republicans win, Chinese tech firms will face increased scrutiny, especially in the high-end technology sector, said senior economist Gary Ng. He added that the pressure will only continue to grow.

"If there are more restrictions on Chinese firms, it means there will be more room for growth for Taiwan or increasingly even from Korea and Japan," Ng said.

Last month, the U.S. announced new export measures that require foreign companies to hold a license to use American equipment in producing high-end chips to be sold to China. The new measures are intended to prevent Chinese companies from using American technology to gain an unfair advantage in the global marketplace.

Samsung Electronics, SK Hynix, and TSMC have all obtained one-year licenses to operate in China. However, ASML has told its U.S. employees that they will not be servicing Chinese customers.

Cathay Pacific Airways has announced that Ronald Lam will be its new CEO, replacing Augustus Tang. Lam will assume the role in August 2019.

Lam will become the new chief customer and commercial officer on Jan. 1.

Shares of the airline rose 0.26% in morning trading, while the broader Hang Seng index fell more than 1.5%.

After a regulator under the People's Bank of China expanded a support program for indebted developers, Hong Kong-listed Chinese property stocks surged. This move provides much-needed relief for developers who have been struggling with high levels of debt. It is hoped that this will help to stabilise the property market and encourage further investment.

The National Association of Financial Market Institutional Investors (NAFMII) has announced that it will be expanding its credit program to support debt sales for private enterprises, including real estate companies. This move will provide much-needed access to capital for these businesses, helping to stimulate economic growth.

Cifi Holdings surged more than 41% in early trading, while Country Garden and Logan Group both jumped by more than 38%. Longfor Group also rose by 13.4%.

China's producer price index fell in October, beating estimates for a further contraction. This follows a 0.9% increase in September and a 1.3% contraction in October on an annualized basis.

The PPI for October marks the first decline since December 2020, according to FactSet data. This is the first time the PPI has declined since December 2020.

China's consumer price index rose 2.1% in October, easing after climbing 2.8% in September. This is compared to a year ago.

The Chinese yuan remained steady around 7.2500 after the release of economic data.

After reporting earnings on Tuesday, shares of Nintendo fell more than 6% in early trade in Japan. This was a disappointing result for investors, who had hoped for better news from the company.

The company has revised its full-year financial outlook and now expects to sell 19 million Nintendo Switch consoles, 9.5% less than its previous projection of 21 million units.

The company said that sales of gaming consoles declined by 19.2% annually, and that it has been affected by factors including the semiconductor shortage.
Copper is having a good month, with prices and mining stocks both trading well in the green.

There are two stocks that have a buy rating from all analysts and a target price upside of more than 200%. This is according to FactSet data.

Chris Krueger of the Cowen Washington Research Group said that investors should focus on the big Senate races in Pennsylvania, Georgia and Nevada tonight. He believes that the party that wins two-thirds of these states will likely take the majority.

According to the research firm's base case, the Republican party will take control of both the House and Senate. Krueger said that a divided government would mean no new taxes for the next two years, as well as no more fiscal stimulus.

Cowen believes that it will take days to count mail-in ballots for numerous races.

South Korea's jobless rate remained unchanged at 2.8% in October, according to the government statistics agency. This is in line with seasonal patterns and indicates that the job market remains strong in the country.

The United States added 677,000 jobs compared to a year ago, according to a recent release. This is good news for the economy, as it indicates that more people are gainfully employed.

The unemployment rate in South Korea is lower than that of the United States, which reported an unemployment rate of 3.8% last Friday.
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A review of historical data shows that the stock market typically rises in the year following midterm elections, even when the economy is in a recession. This pattern suggests that investors are confident in the long-term prospects of the economy and are willing to make bets on its future growth.

The year following midterms has been a strong one for the S&P 500, with the benchmark gaining 20.1% on average, according to Citigroup data going back to 1960. This is a positive trend that investors can take advantage of.

Citi has said that even in years when there is a recession, returns are still surprisingly strong. The S&P 500 has risen by an average of 24.4% during three instances in 1974, 1990 and 2006. This is especially relevant now, as many economists are predicting an economic downturn in 2023 after the Federal Reserve's aggressive rate hikes to control inflation.