SINGAPORE- Asian equities fell to near 3-year lows on Tuesday as early gains inspired by a rally on Wall Street on hopes the Federal Reserve could be nearing the end of aggressive rate increases were offset by weakness in Chinese shares and the yuan.
Equities were mixed in Asia, with Japan’s advancing 0.7 percent and South Korea rising 0.3 percent but Taiwan was down 0.7 percent and Hong Kong shed 0.6 percent.
MSCI’s broadest index of Asia-Pacific shares lost 0.4 percent to 428.2 after dipping to 427.4 , the lowest since April 2020.
ING economists noted widespread weakness in the Purchasing Managers’ Index (PMI) published on Monday across the developed markets. But they said that “perhaps the sharp decline in the US service sector PMI is a silver lining in this bad news if it means slower Fed hikes and perhaps a lower peak Fed funds rate?”
“This could be one reason that equity markets are finding some support,” they added.
The Asian benchmark is nursing losses of nearly 32 percent so far this year, weighed by big falls in Hong Kong shares while emerging markets such as India and Indonesia have gained on improving growth prospects.
However, Chinese stocks fell further on Tuesday after Xi Jinping’s new leadership team raised worries that a more powerful Party leadership will increasingly prioritize the state at the cost of the private sector.
The mainland Chinese benchmark index shed 0.6 and the offshore yuan tumbled to yet another record low against the dollar, weakening to as much as 7.3650 per dollar.
Sentiment had already been affected by delayed data on gross domestic product (GDP) showing the Chinese economy grew 3.9 percent in the third quarter, beating forecasts of 3.5 percent, but retail sales disappointed with a meagre rise of 2.5 percent.
China’s onshore yuan slid to a near 15-year low, after the central bank set the lowest mid-point since 2008 following Monday’s sell-off in Chinese assets.
On Monday, US shares extended last week’s rally and European shares climbed s signs of a cooling US economy stoked hopes that the Federal Reserve will slow its pace of rate hikes.
The Dow Jones Industrial Average rose 1.34 percent, the S&P 500 gained 1.19 percent and the Nasdaq Composite added 0.86 percent.
