Asia-Pacific equities fell after China’s banking regulator expressed concern about bubbles in foreign markets, the day after Wall Street posted its best performance in nearly nine months.
Hong Kong’s Hang Seng benchmark index fell 1.6 percent on Tuesday, reversing initial gains, while China’s CSI 300 index of shares listed in Shanghai and Shenzhen fell 2 percent and the S & P / ASX 200 Australia fell 0.4 percent.
Enthusiasm for US equities also waned after comments by the Chinese regulator, with futures tipping the S&P 500 to a 0.3 percent drop in the opening of Wall Street trades. The FTSE 100 was expected to lose 0.2 percent.
“I am concerned that the bubble problem in foreign financial markets will one day burst,” Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, told local media at a news conference in Beijing. He pointed to gains in the American and European markets made possible by an ultra-loose monetary policy, which he said has “seriously diverged” from the real economy.
“The China market is now highly linked to foreign markets and foreign capital continues to flow,” said Guo, according to the China Securities Times, in a nod to global investors’ appetite for Chinese stocks and bonds. He added that while China can deal with the scale and speed of inflows, “we must avoid volatility [China’s] domestic financial market becomes very large ”.
Japan’s Topix fell 0.4 percent, dampened by finalized data showing that capital expenditures in the fourth quarter fell nearly 5 percent from the previous year. This was a sharp departure from a preliminary reading, showing an increase of 4.5 percent, and raised questions about the strength of the country’s economic recovery.
Moves in Asia followed a banner session for Wall Street that closed with a 2.4 percent increase for the S&P 500 and a 3 percent rise for the technology-focused Nasdaq.
These gains came at a time when government debt markets broadened their recovery after last week’s liquidation. The yield of the 5-year U.S. Treasury, which was at the center of the turmoil, fell 0.03 percentage points on Monday. The 5-year yield was stable at 0.695 percent in Asian trading on Tuesday, as well as the 10-year yield at 1.419 percent. Bond yields fall as prices rise.
“While it may be tempting to conclude that the stock market is getting used to higher yields, it also means that it removes one of the obstacles to yields continuing to rise,” said Robert Carnell, head of Asia Pacific research at ING. “What would undermine an upward trend in bond yields would be a major collapse in risk appetite.”
Australian bond yields soared after the Reserve Bank of Australia kept its cash rate target at a record low of 0.1 percent, with the 10-year yield rising 0.05 percentage points to 1.703 percent. This followed a drop of almost 0.25 percentage point on Monday, after the RBA doubled the size of its regular long-term bond purchases as borrowing costs skyrocketed.
“Australia has shown strong external resilience, despite increased trade tensions with China, the Covid pandemic and before the slowdown in global trade engendered by Trump-era tariffs,” said Josh Williamson, Australia’s chief economist at Citigroup, who recently updated the country’s expected growth in the fourth quarter to 2.9 percent.
In commodity markets, oil prices continued to fall ahead of an OPEC + meeting this week, which could result in an increase in supply. Brent crude, the international benchmark, fell 1.1 percent to $ 62.99 a barrel, while West Texas Intermediate, the American market, fell by about the same amount, to $ 59.99.