HONG KONG / WASHINGTON (Reuters) – Asian stocks reversed their previous gains on Tuesday, weighed by Chinese markets, as investors profited from the recent surge in some companies on the continent, although inflation fears have helped to sustain the broadest sentiment in the region.
Investors now await a close-up appearance in Congress of US Federal Reserve President Jerome Powell and Treasury Secretary Janet Yellen later in the day.
The broader MSCI index for Asia Pacific stocks outside Japan fell 0.57%, hampered by a 1.5% drop in Chinese blue chips.
Gary Ng, an economist at Natixis, said Chinese stocks have been ahead of other Asian markets recently, meaning they should undergo some kind of correction.
Nightly announcements of new sanctions have also not helped Chinese stocks, although analysts say the markets have become quite accustomed to these events.
The United States and other countries, including the European Union, sanctioned Chinese officials on Monday for human rights abuses in Xinjiang, and Beijing responded with punitive measures against European lawmakers, diplomats, institutes and families.
Jin Jing, an analyst at China Fortune Securities, said the sanctions hurt the risk appetite, particularly for foreign investors, who sold shares through Stock Connect.
Persistent concerns about tightening domestic policy also continued to weigh on rising sectors and highly rated stocks, as investors became more cautious.
In addition to China, Asian stocks were mixed after Monday’s Wall Street gains, with investors celebrating a pause in the recent spike in bond yields.
The Dow Jones Industrial Average was up 0.32%, the S&P 500 was up 0.70% and the Nasdaq Composite was up 1.23%.
Developed markets and emerging Asia have also managed to digest a surprising move by the president of Turkey to replace the president of the central bank with a critic of high interest rates.
“It doesn’t look like you’re going to see much contagion from Turkey,” said Alex Wolf, head of investment strategy for Asia at JP Morgan Private Bank, citing “very strong flows to Asia.”
“Investors are less looking at emerging markets as a giant block.”
The 10-year benchmark rose slightly, yielding 1.6857% in the last year, but fell from 1.732% on Friday.
“The US risky assets were helped by a drop in Treasury yields earlier in the week. Yield movements will continue to be closely monitored this week amid a series of US Treasury auctions and depositions from Treasury Secretary Yellen and Fed Powell President, ”said ANZ Research in a daily note.
Fed President Powell said in statements prepared for a congressional hearing on Tuesday that the recovery in the United States had progressed “more quickly than generally expected and appears to be strengthening.”
The dollar index against a basket of six major currencies was almost stable at the start of Asian trading at 91.853, having dropped 0.32% on Monday.
But oil fell amid ample supply and concerns that further restrictions on the pandemic and sluggish vaccine launches in Europe would slow the 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; Editing by Sam Holmes