China’s warnings weigh on Asian equities

Asian equities soft after mixed US session

Wall Street finished on a slightly negative note after softer than expected US PMI data. That saw some rotational flows out of cyclical, and tech with the S&P 500 falling 0.19% while the Nasdaq edged 0.06% higher and the Dow Jones fell by 0.29%. The selling pressure was limited by the fall in US yields providing some peripheral support.

US futures on all three indexes have risen in Asia by around 0.20%, but that has not been enough to stop Asian markets from falling into the red. The rise in Covid-19 cases and their geographical spread in mainland China is clearly spooking local investors today. That sees the Nikkei 225 falling by 0.85%, with the Kospi clinging to unchanged.

Covid-19 aside, the situation on the ground has got murkier in China this morning, with the Economic Information Daily likening online gaming to “spiritual opium,” cue Tencent shares and others being sold heavily. After the last few weeks, even oblique warnings from authorities are ignored at your peril, and it seems that regulatory risk is alive and well in China still.

The mainland’s Shanghai Composite is unchanged, but the more tech-weighted CSI 300 has fallen by 0.60%, while the Hang Seng has fallen by 1.0%. After that article, the modest scope of the falls has me thinking that China’s “national team” might be “smoothing” today.

Singapore has fallen 0.85%, with Kuala Lumpur down 0.30%, while Bangkok has risen by 0.40%. Taipei and Manila are flat, with Australia’s All Ordinaries down 0.20% and the ASX 200 down 0.35%.

Europe is likely to take its cue from the rise in US futures this morning and start the day slightly positive. Only a spiralling Covid-19 caseload in Mainland China would likely spill over onto European markets, which has mostly ignored the China clampdown ructions so far. Yesterday we saw international investors piling into mainland stocks via the Hong Kong/Shanghai connect pipeline. The story mentioned above proves that bargain hunting in China remains fraught with risk still.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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