Hang Seng mixed as China inflation rises but deflation worries linger

HKG33 Analysis

Consumer prices accelerated 0.7% y/y in November, the fastest pace in nearly two years, offering some optimism around domestic demand. The data suggest that Beijing's consumption-focused stimulus and efforts to curb intense price competition in the EV, e-commerce and other sectors are beginning to take effect. The CPI report follows encouraging trade figures, with exports rising 5.9% y/y last month. At the same time, the recent Sino-US trade truce may provide further support for the Chinese economy.

The Hang Seng Index also continues to benefit from a rapid pace of innovation, particularly in AI, with DeepSeek, Baidu and others closing the gap with US tech giants while Beijing pushes for technological self-reliance.

HKG33 finds support today from the positive data, which could help it reclaim the EMA200 (black line) and regain the initiative. However, the index continues to face headwinds that leave it vulnerable to deeper declines.

Deflation concerns persist as the rise in CPI was largely driven by food prices, while factory-gate deflation worsened as producer prices fell 2.2% y/y. Chinese households remain cautious about spending, and the phase out of subsidies could add to deflationary pressures.

Meanwhile, Chinese firms continue to face a challenging macro backdrop and tough domestic competition, relying on promotions that erode margins. These pressures were evident in third-quarter results, with mega caps such as BYD, JD and Baidu reporting declines in profits.