HONG KONG / WASHINGTON (Reuters) – Asian equities reversed gains weighed on Chinese markets earlier on Tuesday as investors boosted profits on a recent rise in some mainland ventures, though inflation fears helped fuel wider sentiment to increase the region.
Investors are now awaiting a close follow-up by Congress President Jerome Powell and Treasury Secretary Janet Yellen later in the day.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.57%, hit by a 1.5% drop in Chinese blue chips.
Natixis economist Gary Ng said Chinese stocks had recently outperformed other Asian markets, meaning they had to get some sort of correction.
Overnight announcements of new sanctions did not help Chinese stocks either, although analysts said markets had become quite accustomed to such developments.
The United States and others, including the European Union, on Monday approved Chinese officials for human rights violations in Xinjiang, and Beijing retaliated with sanctions against European lawmakers, diplomats, institutes and families.
Jin Jing, an analyst at China Fortune Securities, said sanctions hurt the risk appetite, especially for foreign investors who sold shares via the Stock Connect.
Persistent concerns about tightening policy at home also continue to weigh heavily on sectors and stocks with high valuations, as investors have become cautious.
Outside China, Asian equities were mixed following Wall Street’s rise on Monday as investors cheered for a break in the recent run-up to bond yields.
The Dow Jones industrial average rose 0.32%, the S&P 500 rose 0.70% and the Nasdaq Composite 1.23%.
Developed markets and emerging Asia have also managed to digest a surprising move by the Turkish president to replace the central bank governor with a critic of high interest rates.
“It does not look like you are going to see much contagion from Turkey,” said Alex Wolf, head of investment strategy for Asia at JP Morgan Private Bank, saying “fairly strong flow to Asia”.
“Investors view less emerging markets as one giant block.”
Norm notes for ten years rose slightly, last yielding 1.6857%, but lower than 1.732% late Friday.
‘US risk assets were helped by a drop in treasury yields to start the week. The yields will be closely monitored this week amid a series of U.S. Treasury auctions and testimony by Treasury Secretary Yellen and Fed Chairman Powell, “ANZ Research said in a daily note.
Fed Chairman Powell, in preparation for a congressional hearing Tuesday, said the US recovery “has progressed faster than generally expected and appears to be strengthening”.
The dollar’s index against a basket of six major currencies was close to 91.83 in early Asian trading, down 0.32% on Monday.
But oil has fallen amid huge supply and concern that new pandemic curbs and the slow vaccination of vaccines in Europe will delay a recovery in fuel demand.
US West Texas Intermediate Crude Oil Futures
Reporting by Alun John in Hong Kong Chris Prentice in Washington; Additional reporting by Luoyan Liu in Shanghai; Edited by Sam Holmes