China equities dip despite strong PMI reports
Wall Street stocks ranged noisily overnight, finishing slightly lower on the day as they were buffeted by bond market moves, the Archegos fallout, and an impressive US dollar rally. Some pre-Biden nerves also weighed on stocks as impending corporate tax hikes balanced out another potentially USD3 trillion worth of stimulus. The S&P 500 fell 0.31%, the Nasdaq eased 0.11%, and the Dow Jones fell 0.30%, with futures on all three unchanged in Asia.
Asia’s attempt to rally on the mostly strong data releases today has quickly fizzled out, with China markets falling deep into the red. Concerns about the implications of a higher US dollar and higher global bond yields, (it wasn’t just US ones that rose overnight), appear to be weighing on sentiment, particularly in the retail-heavy markets of China, South Korea and Japan.
In Japan, shares of Mitsubishi UFJ Financial Group fell after it announced losses related to Archegos. That dragged banking shares lower and, combined with soft Industrial Production data, has seen the Nikkei 225 fall 0.65%. South Korea’s Kospi attempted to rally this morning but appears to have caught a cold from China markets, with the Kospi now unchanged.
China markets are under pressure today, having headed south directly at the open despite impressive PMI data. China investors appear to have taken fright at another China tech IPO flopping in Hong Kong today, and as Ruili city in Yunnan province enters a Covid-19 lockdown. The Shanghai Composite has fallen by 0.60%, with the CSI 300 down 1.10% and Hong Kong falling 0.40%. That is an improvement on the intra-day losses of earlier, and speculation will abound that China’s “national team” is buying again. Significant falls have seen their appearance in recent times, and if their presence is not confirmed today, China equities could turn south again.
Kuala Lumpur has slumped by 1.60% today after the government downgraded 2021 GDP forecasts. Singapore is unchanged while Jakarta has also declined by 1.65%, with Bangkok unchanged and Taiwan 0.50% lower. Australian markets are bucking the trend for no apparent singular reason. The ASX 200 and All Ordinaries have jumped 1.50% today, with strength seen across all sub-sectors.
Looking across the Asian region, I suspect the previously mentioned month/quarter-end flows are at least partially responsible for the very mixed picture today. Underlying that, though, are concerns about the rise of the US dollar, notably on markets with high levels of foreign-denominated debt, and their implication for interest rates in the region to maintain their dirty pegs to the US dollar. Those pressure will increase if China chooses to keep the yuan firm.
