Asian stocks were on the back foot on Tuesday with investors rattled by China’s interest rate cut as another round of disappointing data underscored its economic troubles.
Cuts to China’s one-year loans to financial institutions, at 15 basis points, were the largest since the outset of the Covid pandemic. Industrial output and retail sales growth both slowed from a month earlier to a year-on-year pace of 3.7% and 2.5% respectively, missing expectations.
The yuan dropped to its lowest in 9-1/2 months, and it’s suspected China’s major state-owned banks stepped into the spot market to steady the currency. After that, it hit 7.2743 per dollar, having been as low as 7.2875.
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That all sent shockwaves across China’s trading floors and stocks fell to hover around one-month lows.
The Shanghai Composite Index fell 0.07%, or 2.25 points, to 3,176.18, while the Shenzhen Composite Index on China’s second exchange was behind 0.66%, or 13.21 points, to 1,986.43. The Hang Seng Index dropped 1.03%, or 192.44 points, to 18,581.11.
Most sectors fell, with shares in tourism, semiconductors, photovoltaic and media companies losing more than 2% each to lead the decline.
The weak market also comes as investors worry about contagion risk in the country’s financial system, with default risks at some housing developers and missed payments by a private wealth management giant.
“The mix of risk events have put great pressure on the entire market,” said Huang Yan, general manager of private fund manager Shanghai QiuYang Capital.
“The rate cut is not particularly meaningful, and it has only a short-term effect on stimulating the economy. China needs a package of measures, and the core is to solve the demand problem.”
Foreign investors sold China stocks for a seventh straight session on Tuesday, dumping a net 8.4 billion yuan ($1.15 billion) on the day.
Tuesday’s figures come on top of a batch of already gloomy data over the past week, including tumbling credit growth and rising deflation risks. China’s top leaders had vowed to step up policy support for the economy during last month’s Politburo meeting. Shares in under-pressure developer Country Garden bounced 1.3% after it tumbled to record lows on default worries.
Bargain-Buyers Boost Nikkei
Japan was an outlier, tracking Wall Street’s firm finish overnight, as investors scooped up stocks after sharp losses in the previous session, with chip-related shares leading the gains.
The Nikkei index rose 0.56% to end at 32,238.89, regaining some of its 1.27% losses in the previous day. The broader Topix ended 0.41% higher at 2,290.31.
Chip-making equipment maker Tokyo Electron rose 1.68%, giving the biggest boost to the Nikkei. Chip-testing making equipment maker Advantest gained 1.91%.
Japan’s economy expanded for a third straight quarter in April-June as brisk auto exports and tourist arrivals helped offset the drag from a slowing post-Covid recovery in consumption.
Elsewhere across the region, in earlier trade, Sydney, Singapore, Taipei, Bangkok, Manila and Kuala Lumpur were all higher. Seoul and Mumbai were closed for holidays.
MSCI’s broadest index of Asia-Pacific shares outside Japan edged down 0.1% to 509.12, not far from a one-month low made on Monday of 506.3 as worry about China’s frozen property sector swept across regional markets.
The yen showed little reaction to events and hit a nine-month low of 145.60 to the dollar, capped as controlled Japanese yields leave a wide gap on rising US yields. The euro recovered slightly from overnight losses to $1.0909.
Elsewhere, Nasdaq 100 futures were up 0.3% in the Asia session. The S&P 500 rose 0.6% overnight and futures rose 0.2% in Asia. European futures rose 0.4%.
In bond markets, benchmark 10-year Treasury yields rose 2 basis points to 4.20% on Tuesday. Two-year yields were steady at 4.97%.
Key figures
Tokyo – Nikkei 225 > UP 0.56% at 32,238.89 (close)
Hong Kong – Hang Seng Index < DOWN 1.03% at 18,581.11 (close)
Shanghai – Composite < DOWN 0.07% at 3,176.18 (close)
London – FTSE 100 < DOWN 1.31% at 7,408.52 (0933 BST)
New York – Dow > UP 0.07% at 35,307.63 (Monday close)
- Reuters with additional editing by Sean O’Meara
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