Market Close Mar 02

Stocks mixed as reflation fears abate but China ‘bubbles' concern grows

Warning of over-valued assets sends China and Hong Kong shares down; bond selloff eases; oil drops on supply increase expectations

Stocks mixed as reflation fears abate but China ‘bubbles' concern
Rising property prices among data indicating asset bubbles may be building in China, official warns: AFP

(ATF) Asian markets were mixed Tuesday, with a global rebound from last week’s selloff halted amid growing concern that asset valuations are too high.

Shares in mainland China and Hong Kong fell after a top regulatory official expressed concerns about the risk of bubbles bursting in foreign markets.

"Financial markets are trading at high levels in Europe, the U.S. and other developed countries, which runs counter to the real economy," Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, told a news conference. 

Chinese blue-chips slipped 1.3% while Hong Kong's Hang Seng Index lost 1.2%. 

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.33%. Japan's Nikkei was down 0.8% as some investors booked profits on defensive energy and utility shares before the end of the fiscal year this month.

Tech rally

US lawmakers' push to get Joe Biden's huge stimulus through Congress in the next two weeks and Wall Street's powerful lead – driven by a rally in tech firms – were not enough to keep spirits up, with inflation fears also hanging in the background.

A ramping-up of immunisations, falling infection rates, government and central bank support and the easing of lockdown measures have fanned expectations that the global economy will enjoy a blistering recovery this year and next, helping propel equities to record or multi-year highs.

But the bright-eyed optimism has given way in recent weeks to worries that the so-called reflation trade will send prices soaring and force officials at the Federal Reserve and elsewhere to wind in their ultra-easy monetary conditions, including lifting interest rates.

And the rise of yields in government bonds in the US and other key economies last week sparked a mini meltdown, which was exacerbated by profit-taking as investors considered some gains to have run a little too far.

However, a stabilisation in the bond market Friday and Monday appeared to have staunched the bleeding for now, while analysts said worries over a surge in inflation and rate cuts were overdone.

And in an interview, top Fed official Thomas Barkin reiterated the message from his bank colleagues that the rise in yields was nothing to be worried about.

"In fact, I would be disappointed if we didn't see yields... rise as the outlook improves," he told the Wall Street Journal in an interview. 

"If the driver is – as it seems to be – news about vaccines, or news about the health of the economy, or news about fiscal stimulus, then I think it's a natural reaction.”

Hong Kong and Shanghai turned into negative territory as the day wore on, after a top Chinese regulator raised concerns that bubbles were forming in financial markets.

Corrections coming

US and European markets were not reflective of their underlying economies and would face corrections "sooner or later", said Guo.

"China's monetary policy has not been as easy as the US and Europe," Steven Leung, at UOB Kay Hian (Hong Kong), said. "This latest comment will create worry of further tightening."

Guo's comments come after a number of observers warned equities were due a retreat following a year-long advance from their March 2020 nadir.

His words implied Chinese central bank policy "will be less accommodative going forward", said Axi's Stephen Innes. "This indicates how sensitive markets are to policy accommodation being taken away. It also highlights that central banks will run at different speeds in pulling away from last year's crisis."

Tokyo, Sydney and Taipei also fell, but there were gains in Seoul, Singapore, Wellington, Jakarta, Mumbai and Manila. London, Paris and Frankfurt opened in the red.

Oil prices slipped as expectations that top producers would agree to raise oil supply in a meeting this week weighed on sentiment, already hit by concerns over slowing Chinese demand.

Brent crude dropped 24 cents, or 0.4%, to $63.45 a barrel by 0940 GMT, after losing 1.1% the previous day. U.S. West Texas Intermediate (WTI) crude fell 18 cents, or 0.3%, to $60.46a barrel, having lost 1.4% on Monday. 

They both touched the lowest in more than 6 days, extending losses that started late last week.

  • Reporting by AFP and Reuters

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Asian Markets

  • Tokyo’s Nikkei 225 fell 0.9% to 29,408.17
  • Hong Kong’ Hang Seng slid 1.2% to 29,095.86
  • Shanghai’s Composite dropped 1.2% to 3,508.59