HONG KONG (Reuters) – Asian shares lost ground on Wednesday, and were set for their worst quarter since the coronavirus pandemic hit, as worries about economic growth in China combined with fears of a global slowdown and a strong dollar to push equities markets lower.
The dollar touched an 18-month high against the yen in Asian hours and stayed steady at over a 10 month high versus other major peers after overnight gains, boosted by a recent run up in U.S. Treasury yields, which had also helped spook U.S. equity markets.
Doubts are re-emerging over the global recovery at a time when the U.S. Federal Reserve is set to taper stimulus and the administration of U.S. President Joe Biden is stuck in contentious debt ceiling negotiations that could lead to a government shutdown. At the same time, China is grappling with a power crunch that has impacted economic output there.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.84% and was heading for a 9.4% decline for the third quarter, its worst quarterly performance since the first three months of 2020, when markets globally were roiled by the initial spread of COVID-19.
There were declines in benchmarks in South Korea, down 1.3%, Australia off 1.2%, and in Chinese blue chips which shed 0.6%%, though Hong Kong bucked the trend rising 0.5%.
Japan’s Nikkei shed 2.12% following declines in the U.S overnight as the country’s ruling party votes for a new leader who will almost certainly become the next prime minister ahead of a general election due in weeks.
Futures suggested a risk friendlier mood could return later with U.S. stock futures, the S&P 500 e-minis, up 0.51%, pan-region Euro Stoxx 50 futures 0.36% higher and FTSE futures trading just above flat.
One factor sapping the mood in Asia was China’s worsening power crunch, which pushed investors out of Chinese stocks vulnerable to factory shutdowns including chemicals and steelmaking, even as the country’s all-powerful economic planning agency attempted to reassure residents and businesses.
The energy troubles follows turmoil in China’s property sector as investors closely watch the fate of indebted developer Evergrande, and regulatory changes in education and technology, with some observers suggesting authorities wanted to get the changes in while economic growth was reasonably strong.
“I think the window will close in the next one or two months as GDP may surprise on the downside … and there may be employment problems,” said Alan Wang, Portfolio Manager, Greater China Equities, at Principal Global Investors.
“When the government sees those numbers they may start to change their behaviour, or maybe extend some deadlines”
Evergrande shares rose 10.8% after it said it plans to sell a 9.99 billion yuan ($1.5 billion) stake it owns in Shengjing Bank, but investors are still waiting to see whether the cash-strapped developer will make an interest payment due Wednesday on a dollar bond.
ROTATE TO VALUE
Overnight, all three major U.S. stock indexes slid nearly 2% or more, with interest rate sensitive tech and tech-adjacent stocks worst hit by the surging bond yields, as investors began to shift to value names. [.N]
Benchmark 10-year rates have gained 25 basis points in five sessions but inched down in Asian hours to 1.5392%, having hit their highest since mid-June the day before
“We think (10-year Treasury yields) are likely to around 1.5% to 1.75%, so they obviously still have room to go,” said Daniel Lam, senior cross-asset strategist at Standard Chartered.
Lam said the rise in yields was driven by the fact the United States was almost definitely going to start tapering its massive asset purchases by the end of this year.
Oil prices dropped having touched a near three-year high the day before. Brent crude fell 1.8% to $77.67 per barrel U.S. crude dipped 1.75% to $73.97 a barrel. [O/R]
Gold edged higher with the spot price at $1,739.5 an ounce, up 0.4% from the seven-week low hit the day before as higher yields hurt demand for the non-interest bearing asset.
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