Asian stocks choked by inflation, China fears

A man wearing a protective mask, amid the outbreak of the coronavirus disease (COVID-19), walks through an electronic board displaying the Shanghai Composite Index, the Nikkei Index and the Dow Jones Industrial Average outside a brokerage in Tokyo, Japan, March 7, 2022. REUTERS/Kim Kyung-Hoon

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HONG KONG (Reuters) – Asian shares fell on Monday as investors worried that inflation and higher interest rates would hamper the global economic outlook, and the COVID-19 situation in China weighed on sentiment, with technology companies hit particularly hard.

MSCI’s broadest index of Asia Pacific shares outside Japan (.MIAPJ0000PUS) is down 0.3% as major markets in the region are trading in the red. Oil rose and gold extended its recent gains.

However, US and European markets seem to be shrugging off the gloomy Asian mood with Eurozone Stoxx 50 futures up 1.35%, German DAX futures up 1.4% and FTSE futures up 0.83%. S&P 500 futures rose 1.04%.

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Australian shares (.AXJO) reversed early gains to fall 0.13% on Monday, while Japan’s Nikkei (.N225) bucked the regional trend and rose 0.7%.

The negative tone was evident as Hong Kong’s Hang Seng Index (.HSI) fell 1.27% and the mainland’s CSI300 Index (.CSI300) fell 0.7%, weighed down by the technology sector. Hang Seng Tech (.HSTECH) is down 2.2% and down 26.5% so far this year.

“The sell-off in Asia is primarily driven by the negative global sentiment that exists at the moment,” Jack Siu, chief investment officer for China at Credit Suisse, told Reuters.

He added that China’s technology sector will remain volatile until there is greater regulatory clarity and stability in US markets.

Investors are still keeping a close eye on China’s daily COVID-19 numbers, and Beijing on Monday reported 99 new infections the day before, the largest daily tally so far during the month-long outbreak.

The pullback in China markets on Monday came after a surprisingly strong end to last week, when Hong Kong and mainland markets rose between roughly 2% and 3%.

There was $2.13 billion in net inflows into mainland stocks Friday by foreign investors, the highest level in 2022, according to stock exchange data.

In foreign exchange, the dollar index, which measures the US currency against a basket of the currencies of other major trading partners, fell 0.35% to 102.63.

The 10-year Treasury yield rose to 2.8207% from its US close of 2.877% on Friday.

The two-year yield, which rose with traders anticipating a hike in the federal funds rate, rose to 2.6266%, up from 2.583%.

Inflationary pressures remain at the forefront of investors’ minds, given the German wholesale inflation figures published on Friday which showed a higher-than-expected jump suggesting prices will remain elevated in the short term.

In Australia, Labor won a general election at the weekend, ending nearly 10 years of rule by its Conservative rivals. Read more

While Labor has promised climate, housing and welfare reforms, analysts do not believe the change in government will create major repercussions for the economy.

“In our view, there were very few proposals by the incoming government during the election campaign that would require us at this point to reconsider our economic forecasts,” CBA economists wrote on Monday.

“In other words, our economic outlook and our call for the RBA have not changed despite the change in national leadership.”

The dollar fell 0.24% against the yen to 127.54, after initially rising. It is still close to this year’s high of 131.34, which it hit on May 9.

US crude rose 0.64 percent to $110.24 a barrel. Brent crude rose 0.9 percent to $112.68 a barrel.

Concerns about global economic growth have led to renewed support for gold.

“Gold prices saw their first weekly gain since mid-April, as safe-haven demand was boosted by concerns about economic growth amid rising inflation,” ANZ analysts said in a research note on Monday. The weak US dollar also boosted investor appetite.

And the spot gold price rose 0.3 percent early on Monday at $1,854.9 an ounce.

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Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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