Chinese stocks ended Friday's trading with a mixed performance, as the Shanghai index was almost stable, while leading stocks achieved limited gains, at a time when the Hong Kong market rose supported by hopes that Beijing would take additional financial measures to support the second largest economy in the world. In the currency market, the yuan continued to show remarkable strength near its highest levels in 3 and a half years, benefiting from the weakness of the dollar, but the Chinese central bank continues to send signals that it prefers a gradual rise in the currency rather than a rapid, unidirectional rise.
The Shanghai Composite Index closed flat at 3,905.20 points, while the CSI300 blue-chip index rose 0.6 percent. Over the course of the week, Shanghai lost 0.6 percent, while the CSI300 fell 1 percent.
One of the most prominent indicators of caution was the decline in the value of trading in Chinese A-class stocks to 1.88 trillion yuan, or about 279.75 billion dollars, which is the lowest level since April 7.
In contrast, the “Chainext” index for emerging companies rose 1.4 percent, while the “Star 50” index, which is dominated by technology companies, closed with little change.
These moves indicate that investors are still reluctant to build large positions in Chinese stocks, despite increasing official talk about the possibility of providing additional economic support.
Chinese Deputy Minister of Finance, Liao Min, said that China will implement additional fiscal policy measures according to the development of economic conditions, in a sign that has brought the stimulus file back to the forefront of market concerns. But the reaction of stocks remained limited, which reflects the widening gap between investors’ expectations regarding stimulus and what they see as necessary to bring about a tangible transformation in the economy.
Wei Khun Chung, macroeconomic strategist for the Asia-Pacific region at BNY, said that the Chinese economy is still having difficulty gaining momentum, noting that the weak performance of stocks despite the Finance Ministry’s statements means that expectations for government support are already high.
For investors, announcing the possibility of providing further support is no longer sufficient in itself. The market is looking for evidence that fiscal measures will actually trickle down to consumption, investment, and credit, and lead to a recovery in domestic demand.
This issue is increasingly important after a series of July data showed weakness in industrial production, retail sales and lending, which reinforced fears that the recovery still lacks a strong internal driver.
Fiscal policy seems likely to bear a greater part of the responsibility for supporting economic activity, especially in light of the monetary authorities’ keenness to balance supporting growth with maintaining currency stability and bank profit margins.
In Hong Kong, the picture was more positive, as the Hang Seng Index rose 1.2 percent, and technology stocks rose 1.4 percent.
Non-ferrous metal stocks in China benefited from the rise in gold, with a sub-index for the sector rising 2.7 percent. The rise in the precious metal was supported by the weakness of the dollar and turmoil in the US bond markets after the US Treasury intervened by increasing bond repurchase operations.
The yuan continues to rise
In the currency market, the yuan traded near its strongest levels since February 2023, and reached about 6.7221 yuan to the dollar in the local market, up 0.06 percent. In the previous session, it recorded 6.7203 yuan to the dollar, the highest level in 3 and a half years.
If the yuan maintains its gains, it is on track to record the eighth consecutive week of rise against the dollar, with weekly gains of approximately 0.3 percent. It has also increased by about 4 percent since the beginning of the year.
But the People's Bank of China does not seem willing to let the currency rise too quickly. It set the daily reference rate at 6.7817 yuan to the dollar, which is 555 points weaker than the Reuters estimate of 6.7262.
Since November 2025, the central bank has been setting reference rates weaker than market expectations, a policy that traders interpret as an attempt to limit excessive yuan strength and maintain exchange market stability.
This approach is consistent with authorities preferring a gradual rise rather than a unidirectional upward movement, said Christopher Wong, currency strategist at OCBC Bank. He believes that the weakness of the dollar and exporters' shifting of their revenues to the yuan will remain supportive factors for the currency, but official policy will likely limit any rapid rise. Here a sensitive equation appears before Beijing. A stronger yuan can support confidence in Chinese assets and reduce the cost of imports, but at the same time it may reduce the competitiveness of exporters at a stage when the economy relies heavily on external demand to compensate for weak domestic consumption.
Investors' attention is now turning to the United States, especially Federal Reserve Chairman Kevin Warsh's speech during the Jackson Hole symposium next week. Any new signals about inflation and the path of US interest rates could directly affect the dollar and US yields, and thus the direction of the yuan and capital flows into Chinese markets.
Thus, Chinese markets enter the next stage between two opposing forces: expectations of more fiscal stimulus that support stocks, and continued weakness in domestic demand that prevents investors from rushing towards risk.
As for the yuan, it has become one of the most prominent strengths in the Chinese financial scene, but Beijing seems determined to keep its rise measured, in a way that maintains the balance between currency stability and supporting exports and growth.
South Korean stocks ended trading on Friday with support from semiconductor companies, benefiting from the improvement of their American counterparts and the strength of export data. But these gains were not enough to prevent the market from recording a weekly loss, at a time when artificial intelligence-related stock volatility increased, while foreign investors continued to sell and local bond yields rose. The KOSPI index closed up 60.37 points, or 0.88 percent, at 6,912.95 points, but ended the week down by about 0.9 percent. This comes after a weekly jump of 11.5 percent in the previous week, which was the largest since early May, and ended seven consecutive weeks of losses. The weekly decline reflects the degree of sensitivity that has become characteristic of the Seoul market towards global movements in the technology and artificial intelligence sector. The volatility index remained at a high level of 58 points on Friday, compared to the lowest level in two months of 55 points recorded last week.
Chip companies were the main driver of the session's gains, as Samsung Electronics shares rose 3.87 percent, while SK Hynix shares rose 2.31 percent, after the Philadelphia Semiconductor Index in the United States rose 0.5 percent. The performance of the two companies is of great importance to the Korean market, given their weight in the index and their pivotal role in the global semiconductor supply chain.
SK Hynix, in particular, has become one of the most prominent beneficiaries of the demand for advanced memory chips used in artificial intelligence systems and data centers. The technology sector received additional support from trade data. Figures showed that South Korea's exports increased by 56 percent during the first 20 days of August. This provides a positive signal about external demand and reinforces the importance of the semiconductor cycle for the Korean economy, which is highly dependent on exports.
Investors are also awaiting the moves of Samsung Electronics, which intends to hold a meeting of its board of directors to discuss a new package for shareholder returns. Any increase in dividends or share repurchases may become an additional factor to support the stock and make the market attractive to investors.
But the broader picture was less robust than the index's rise suggests; Out of 904 shares traded, only 193 shares rose, compared to 683 shares that declined. What reveals that the gains were largely concentrated in a limited number of major companies.
LG Energy Solutions, a battery maker, fell 4.05 percent, while Hyundai Motor fell 0.60 percent, and Kia fell 0.15 percent. “Bosco Holdings” shares also lost 3.58 percent, and “Samsung Biologics” fell 1.46 percent. Foreign investors continued to take a cautious stance; They recorded net stock sales of 175.9 billion won, equivalent to about $126.9 million.
This indicates that the session's rise was not accompanied by a strong return of external capital. In the currency market, the dollar's weakness supported the won, which rose 0.69 percent to 1,386.5 won to the dollar, compared with a previous close of 1,396 won. The rise in the local currency represents a positive factor in terms of reducing the cost of imports, but it may partially limit the gains achieved by exporting companies when converting their foreign revenues into the local currency.
In contrast, borrowing costs rose. The three-year Korean Treasury bond yield rose 3.3 basis points to 3.855 percent, while the 10-year bond yield rose 3.8 basis points to 4.372 percent. These moves come at a time when the Korean authorities confirm their monitoring of risks in the financial markets, currencies, bonds and real estate. The Finance Minister said that the authorities will proactively evaluate risk factors and act quickly when needed, while the new Deputy Governor of the Bank of Korea stressed that monetary policy decisions will be made “very cautiously” and flexibly, taking into account factors including the side effects of raising interest rates.
British public finances recorded a surprising deficit in July, in a development that highlights the limited financial space available to the new Finance Minister, John Healey, before the October budget, despite the recent improvement shown by some economic indicators. Data from the Office of National Statistics showed that net public sector borrowing amounted to 1.8 billion pounds sterling, equivalent to about 2.5 billion dollars, during July.
The result was worse than the expectations of economists polled by Reuters, who favored a balanced budget, and also contradicted the estimates of the Office for Budget Responsibility, which indicated a surplus of 500 million pounds.
Achieving this surplus would have made July the first similar month to record a surplus since before the “Covid-19” pandemic, but the increase in government spending linked to inflation offset the impact of record revenues from the self-assessed income tax. Details of the data reveal that the main problem does not lie in weak revenues as much as it is related to the continued rise in the spending bill. Central government spending on social benefits increased by two billion pounds compared to the same period last year, while spending on goods and services, including employee costs, increased by about 1.2 billion pounds.
A review of the June data provides some relief, after the deficit estimate was reduced to 12.8 billion pounds from 16 billion in the previous reading. However, the picture since the beginning of the fiscal year still indicates clear pressures. During the first four months of the 2026-2027 fiscal year, government borrowing amounted to 56.7 billion pounds, exceeding the Office for Budget Responsibility’s expectations of 54.4 billion pounds by about 2.3 billion pounds.
Economists believe that this exceedance may not be temporary. Thomas Pugh, chief economist at tax and consulting firm RSM, said he expected borrowing to exceed the Office for Budget Responsibility's forecasts during the rest of the year as spending continued to rise.
He pointed to three main factors putting pressure on British public finances: the rise in government bond yields, continued inflation, and the government’s desire to increase spending. According to his estimates, borrowing may remain above 4 percent of GDP this year, instead of falling to 3.6 percent according to official expectations.
Here lies one of the most prominent dilemmas facing the government. High inflation not only increases the costs of programs and price-related benefits, but also raises the cost of servicing part of the public debt, at a time when higher bond yields increase the cost of new borrowing and refinancing outstanding debt. The debt interest bill rose in July by about 700 million pounds compared to the previous year. An official at the Office for National Statistics also expects this cost to rise sharply when the September data is released, as a result of inflation trends and the timing of bond interest payments. These numbers are especially important before the October budget. It reduces Haley's ability to combine increased spending with adherence to fiscal rules, without resorting to measures to boost revenues or reduce some expenses.
Current rules stipulate that the current budget, which compares tax revenues with daily spending, must be balanced by the 2029-2030 fiscal year. In this particular aspect, the picture appears relatively better. The current budget deficit reached 34.7 billion pounds during the period from April to July, compared to 36.7 billion pounds expected by the Office for Budget Responsibility. This means that the government is still performing better than expected in a key measure used by its fiscal rules, despite overall borrowing exceeding estimates.
Healey stressed that “fiscal discipline is the cornerstone of economic stability and national security in the United Kingdom,” stressing the government’s commitment to its financial rules and maintaining a margin to confront global uncertainty. But maintaining that margin may become more difficult if bond yields and inflation remain high; Every sustained increase in the cost of borrowing depletes resources that could be directed to public services or investment, while rising social spending makes controlling expenditures more politically and economically complex.
For markets, the October budget will be a test of the government's ability to provide a convincing mix between supporting the economy and maintaining its financial credibility. If borrowing continues to exceed expectations, the government may find itself facing more difficult choices, including raising revenues or rearranging spending priorities.
Thus, the July deficit of 1.8 billion pounds may seem limited on its own, but it carries a larger message, which is that Britain is entering the budget preparation season, at a time when the cost of inflation, interest, and public spending have become factors that narrow the margin of maneuver, and make maintaining the confidence of the bond market an essential part of any future financial decision.
