Asian stocks are gaining ground as China’s concerns grow

HONG KONG / WASHINGTON (Reuters) – Asian equities reversed previous gains on Tuesday, weighed down by Chinese markets as investors reaped gains in a recent decline in some mainland companies, although fears of inflation eased and fostered a broader sentiment in the region.

Investors now expect an appearance in Congress closely monitored by U.S. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen later.

MSCI’s broader Asia-Pacific stock index outside of Japan fell 0.57%, hurt by a 1.5% drop in Chinese blue chips.

Gary Ng, an economist at Natixis, said Chinese stocks had outperformed other Asian markets recently, meaning they had to make some sort of correction.

Announcements overnight of new sanctions also did not help Chinese stocks, although analysts said markets had become quite accustomed to these developments.

The United States and others, including the European Union, on Monday sanctioned Chinese officials for human rights abuses in Xinjiang, and Beijing attacked with punitive measures against European lawmakers, diplomats, institutes and families.

Jin Jing, an analyst at China Fortune Securities, said the sanctions hurt the appetite for risk, particularly for foreign investors, who sold shares through Stock Connect.

Persistent concerns about tightening policies at home also continued to weigh on sectors and stocks with high ratings with high ratings, as investors became cautious.

Beyond China, Asian equities mixed after Wall Street gains on Monday, while investors cheered the breakdown of the recent build-up of bond yields.

The Dow Jones Industrial Average rose 0.32%, the S&P 500 gained 0.70% and the Nasdaq Composite added 1.23%.

Developed markets and emerging Asia also managed to digest a surprise from the Turkish president to replace the central bank governor with a critique of high interest rates.

“You don’t seem to see much contagion in Turkey,” said Alex Wolf, head of investment strategy for Asia at private bank JP Morgan, who cited “fairly strong flows in Asia.”

“Investors view emerging markets less as a giant bloc.”

10-year benchmark bonds rose slightly, with a yield of 1.6857%, but fell from 1.732% on Friday afternoon.

“U.S. risk assets were helped by a decline in Treasury yields to start the week. Yield movements will continue to be closely monitored this week amid a series of U.S. Treasury auctions and the testimony of Treasury Secretary Yellen and Fed Chairman Powell, ”ANZ Research said in a daily note.

Fed Chairman Powell said in statements prepared for a congressional hearing Tuesday that the U.S. recovery had advanced “faster than generally expected and looks set to strengthen.”

The dollar index against a basket of six major currencies remained almost flat at the start of Asian trading, at 91.853, after falling 0.32% on Monday.

But oil fell amid widespread supply and concerns that new pandemic limits and the slow deployment of vaccines in Europe are holding back the recovery in fuel demand.

Intermediate futures on crude oil from the western US of Texas fell 1.28% and Brent crude futures fell 1.27%.