RBNZ: 25bp Rate Cuts Expected In April & May If Economy Develops As Expected

China and Hong Kong equities are rallying, buoyed by optimism over improved US-China relations following a positive pre-inauguration call between Donald Trump and Xi Jinping. The CSI 300 Index rose as much as 1.2%, led by gains in tech stocks like Shengyi Technology (+8.9%) and Eoptolink Tech (+7.4%). In Hong Kong, the Hang Seng Index is 2.3% higher, while the Hang Seng Tech Index jumped 3.25%, with e-commerce giants JD.com (+5.8%) and Alibaba (+3%) driving the rally.

• The market also reacted to China leaving its loan prime rates unchanged, with the one-year rate at 3.1% and the five-year rate at 3.6%. Education shares advanced after government guidance promoting AI and stricter curriculum controls, with New Oriental Education & Technology rising 6%. Additionally, reports of re-lending facilities supporting A-share buybacks have boosted sentiment, benefiting privately-run firms.
• Traders aggressively bought call options on Chinese stock-linked ETFs like FXI and KWEB on Friday, driven by optimism over a positive Trump-Xi call signaling potential easing in trade tensions. This activity pushed one-month implied volatility on FXI to its highest since mid-December, with bullish bets also driving significant gains in both ETFs.
• Overall, the markets are balancing optimism with caution over potential trade tariffs under Trump's incoming administration.

China’s property market has shown recent signs of stabilisation, with home prices in first-tier cities trending upwards for three consecutive months and transaction volume remaining at a high level, Securities Daily reported, citing Zhang Bo, director at 58 Anjuke Real Estate Research Institute. Prices of new homes in tier-one cities rose by 0.2% m/m in December, compared to November’s 0.0%. Existing housing was 0.0%, up from the previous 0.1% decline. Major cities' real-estate markets are expected to boom after the Chinese New Year if authorities keep offering policy support, the newspaper said, citing Zhang.

Provincial economic targets of around 5% or above in 2025 demonstrate positive macro trends and intensified support policies, according to Zhang Yiqun, deputy director at the Chinese Society of Finance. Zhang said building a unified domestic market and enhancing confidence will be the primary task this year, with a focus on promoting consumption and investment. Mingming, chief economist at CITIC Securities, said China has shifted to high-quality development and needs to incorporate consumption alongside investment and exports as a growth driver.