(ATF) Hong Kong: Asian markets retreated as the relentless surge in US Treasury yields prompted investors to lighten up on risk with Hong Kong markets taking an additional hit from an increase in stamp duties proposed in the government budget.
Hong Kong announced its first stamp-duty increase on stock market transactions since 1993, triggering a sell-off in the $7.6 trillion market, although analysts said the impact would be short-lived.
“The stamp duty has been cut three times since 1993, while the proposed hike would be the first hike in that timeframe. Raising the stamp duty to 0.13% would take it to the highest level since 1998,” CCB International analysts Cliff Zhao and Lynn Song said in a note.
”However, the relatively modest hike in the tax is unlikely to have a major impact overall, especially for medium to long-term investors, who are likely to only be tangentially affected by the measures.”
Japan’s Nikkei 225 index slid 1.61%, Australia’s S&P ASX 200 slipped 0.90%, China’s CSI300 retreated 2.55% but Hong Kong’s Hang Seng index underperformed with the benchmark tumbling 2.99%. It was the benchmark’s biggest daily percentage drop since May 2020. Regionally, the MSCI Asia Pacific index fell 2.09%.
Markets remained on edge about price pressures even after US Federal Reserve chairman Powell told Congress the economy remained “a long way” from employment and inflation goals. He also said that rates would stay low and bond buying would proceed apace until there was “substantial further progress”.
US Treasuries extended falls in Asia with the 10-year yield up 2 basis points to 1.37% and oil continued its rally with the WTI crude gaining 0.5%.
Biden's big stimulus package coming
Later in the week, focus will shift to fiscal support in the world’s largest economy as President Joe Biden’s $1.9 trillion stimulus package will be headed for a full House vote which is likely to pass with the Democrats’ majority.
”Overall, the Biden stimulus takes precedence over Mr Powell’s testimonies in deciding how strong the US recovery will be and how steep the US yield curve will be later this year,” DBS strategists Duncan Tan and Philip Wee said.
But investors say there have been precedents of rising US yields and Asian stocks co-existing.
“The rise in yields will certainly give pause to rising stocks in Asia and other parts of the world as investors assess whether central banks will start to usher in a new interest rate regime and what a higher discount rate means for stocks. However, there have also been recent instances when rising US Treasuries coincided with a bull Asian market rally, for example in 2016-2017,” said David Chao, Global Market Strategist, Asia Pacific (ex-Japan) at Invesco.
The British pound remained elevated rising to $1.4295 against the dollar, its highest since April 2020.
“GBP [the pound] has been aided in large part to the favourable market backdrop: rising bond yields combined with equities. Should the rise in bond yields continue (as we expect) and should equity markets remain supportive, we see little reason why GBP cannot continue to extend the current rally,” BofA Securities analysts Kamal Sharma and Michalis Rousakis said.
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· Japan’s Nikkei 225 index slid 1.61%
· Australia’s S&P ASX 200 slipped 0.90%
· Hong Kong’s Hang Seng index tumbled 2.99%
· China’s CSI300 retreated 2.55%
· The MSCI Asia Pacific index fell 2.09%.
Stock of the day
Hong Kong Exchange and Clearing Ltd shares plunged as much as 12.3% after Finance Secretary Paul Chan unveiled a budgetary proposal stamp duty on securities transactions be raised from to 0.3% from 0.1%.