Tech whacked by Chinese crackdown; rate rumblings rally bonds

FAN Editor
Man wearing a face mask is seen inside the Shanghai Stock Exchange building, as the country is hit by a novel coronavirus outbreak, at the Pudong financial district in Shanghai
A man wearing a face mask is seen inside the Shanghai Stock Exchange building, as the country is hit by a novel coronavirus outbreak, at the Pudong financial district in Shanghai, China February 28, 2020. REUTERS/Aly Song/Files

July 8, 2021

By Tom Westbrook

SINGAPORE (Reuters) – Asian stocks fell to a six-week low on Thursday as investors sold companies caught in a widening Chinese tech crackdown, while a surprising hint at monetary easing in China raised questions about the strength of the global pandemic recovery.

MSCI’s index of Asia shares outside Japan fell 1% to its lowest since late May, led by a 2.3% drop in the Hang Seng, where one-time darlings Tencent and Alibaba slumped to year-to-date lows.

Japan’s Nikkei fell 0.6%, S&P 500 futures fell 0.2% and Euro Stoxx 50 futures fell 0.1%.

The tech index in Hong Kong, where several of China’s biggest online giants are listed, has tanked nearly 12% in seven straight sessions of losses as investors become more and more alarmed at the growing ambit of China’s crackdown.

“What started off as a clean-up and antitrust measures seemingly now has moved into overseas capital markets,” said Jefferies global equity strategist Sean Darby, referring to the latest target: newly New York listed ride-hailing firm Didi.

“I think that has really soured sentiment,” he said.

Shares in Didi crumbled another 4.6% on Wednesday to put them more than a quarter below last week’s offer price, a selloff sparked when China ordered the app removed from stores.

In tandem with the tech crackdown, guidance toward rate cuts from Chinese policymakers has also spooked investors by highlighting softness in China’s economy – weak loan growth and slow demand – which threatens the pace of the global recovery.

China’s cabinet said late Wednesday that policymakers will use timely cuts in the bank reserve requirement ratio (RRR) to support the real economy, especially small firms.

“We believe that such a cut will come soon,” said ING’s chief greater China economist Iris Pang. “This could be a surprise for markets at a time when other major central banks are talking about rate hikes and the taper timetable.”

The yield on 10-year Chinese sovereign debt posted its sharpest fall in nearly a year on Thursday, dropping 7.1 basis points to 2.9996%, the lowest since August, while the yen and the U.S. dollar both rose broadly with a safety bid.

DIVERSE SIGNALS

Later on Thursday the European Central Bank will publish results of its strategy review and President Christine Lagarde speaks at a news conference. She is likely to strike a dovish tone and loosen the definition of the bank’s inflation target.

Investors are also getting a bit unnerved by big shifts in bond markets during Europe and New York hours.

Bond traders seem to be betting on policymakers, particularly the Federal Reserve, acting moderately soon to tame inflation, while equities – which closed at record highs on Wall Street – seem priced for years of easy policy to come.

Ten-year Treasuries have rallied eight days straight with no obvious catalyst, taking the yield down 22 basis points to sit by its lowest since February at 1.3045%.

“Equity markets and the economy are saying the reflationary trade has got plenty to go,” said Matt Sherwood, head of investment strategy at Sydney-based fund manager Perpetual.

“But when you look at the bond market it’s saying the refaltion trade is pretty much over. So we have two absolutely diverse signals from separate parts of the financial markets.”

Currency markets appear caught between the two and were driven by risk aversion on Thursday – pushing the dollar up on riskier currencies but down a bit on the euro and yen. It last bought 110.26 yen and traded at $1.1805 per euro.

Oil remained under pressure amid a wave of new viral infections sweeping Asia and the world and anxiety about a rise in supply after the collapse of talks among producers.

Brent futures were last down 0.1% at $73.36 a barrel and U.S. crude fell 0.3%.

Cryptocurrencies were sold on fresh negative comments from Chinese policymakers and bitcoin fell to a one-week low.

(Reporting by Tom Westbook; Editing by Shri Navaratnam and Kim Coghill)

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