Asian stocks shed earlier gains on Tuesday, as investors took profit on a recent rally in some mainland firms. Receding inflation fears helped though, in shoring up broader sentiment in the region.
Chinese shares had run ahead of other Asian markets recently, according to Gary Ng, economist at Natixis. This meant they were due for some kind of correction, he said.
Later in the day, a Congressional appearance by the U.S. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen is set to take place.
Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan lost 0.57%, hurt by a 1.5% drop in Chinese blue chips.
By 11:01 PM ET (3:01 AM GMT), China’s Shanghai Composite slipped 0.85%. The Shenzhen Component slid 1.05%.
Chinese relations with the U.S., U.K., the European Union, and Canada have gone sour. This was due to the imposition of sanctions over alleged human rights abuses on Xinjiang’s Uyghurs.
In Hong Kong, Hang Seng Index dipped 1.57%. Baidu Inc shares, earlier in the day, climbed more than 1% from their issue price in early Asian trading.
Japan’s Nikkei 225 added 0.07% and South Korea’s KOSPI edged down 0.50%. In Australia, the ASX 200 rose 0.19%.
Chinese stocks did not benefit from overnight announcements of new sanctions. This was despite analysts saying markets had become fairly accustomed to such developments.
On Monday, the United States, the European Union and others have sanctioned Chinese officials for human rights abuses in Xinjiang. Beijing has hit back with punitive measures against EU lawmakers, diplomats, institutes and families.
Sanctions hurt risk appetite, said Jin Jing, an analyst with China Fortune Securities. This is for foreign investors, in particular, who sold shares via the Stock Connect.
Persistent worries of policy tightening at home also weigh on high-flying sectors. Moreover, they also weigh on stocks with lofty valuations as investors turn cautious.
On Wall Street
Elsewhere, on Monday, Asian shares were mixed after Wall Street’s gains on this day. Meanwhile, investors cheered a break in the recent run-up of bond yields.
The Dow Jones Industrial Average, S&P 500, Nasdaq Composite each gained 0.32%, 0.70% and 1.23% respectively. Developed markets and emerging Asia were still digesting Turkey’s President’s surprise move of replacing its central bank governor with a critic of high interest rates.
Alex Wolf, head of investment strategy for Asia at J.P. Morgan Private Bank cited “pretty strong flows into Asia”. It doesn’t appear that they’re going to see much contagion from Turkey, he said.
Investors are less looking at emerging markets as one giant bloc, Wolf added.