Asia stock markets reverse gains on China concerns

by Jonathan Adams

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.57%, on the back of a 1.5% drop in Chinese blue chips

Stocks in Asia reversed previous gains on Tuesday, weighed by Chinese markets as investors took profit on a recent rally in some mainland firms, although ebbing inflation fears helped shore up broader sentiment in the region.

Investors now await a Congressional appearance by U.S. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen later in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.57%, on the back of a 1.5% drop in Chinese blue chips.

Gary Ng, economist at Natixis, said Chinese shares had run ahead of other Asian markets recently, which meant they were due for some kind of correction.

Overnight announcements of new sanctions also did not help Chinese stocks, even though analysts said markets had become fairly accustomed to such developments.

The US and others including the EU sanctioned Chinese officials on Monday for human rights abuses, and Beijing hit back with punitive measures against European lawmakers, diplomats, institutes and families.

Jin Jing, an analyst with China Fortune Securities, said sanctions hurt risk appetite, in particular for foreign investors, who sold shares via the Stock Connect.

Concerns of policy tightening at home also continued to weigh on high-flying sectors and stocks with high valuations as investors turned cautious.

Beyond China, Asian shares were mixed after Wall Street’s advances on Monday as investors cheered a break in the recent run-up of bond yields.

The Dow Jones Industrial Average added 0.32%, the S&P 500 advanced 0.70% and the Nasdaq Composite rose 1.23%.

Developed markets and emerging Asia also managed to digest a surprise move by Turkey’s President to replace the central bank governor with a critic of high interest rates.

It doesn’t appear that you’re going to see much contagion from Turkey, said Alex Wolf, head of investment strategy for Asia at J.P. Morgan Private Bank citing “pretty strong flows into Asia.” Investors are less looking at emerging markets as one giant bloc.

Benchmark 10-year notes edged up slightly, last yielding 1.6857%, but down from 1.732% late on Friday.

U.S. risk assets were aided by a dip in Treasury yields to start the week. Movements in yields will continue to be closely watched this week amid a series of U.S. Treasury auctions and testimony by Treasury Secretary Yellen and Fed Chair Powell, ANZ Research said in a daily note.

Fed Chair Powell said in remarks prepared for a congressional hearing on Tuesday that the U.S. recovery had progressed “more quickly than generally expected and looks to be strengthening.”

This article is for information purposes only.
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