Ukraine and Chinese tech woes combine to compound pain for Asian stocks

(Bloomberg) – Asian stocks slid for the third day as escalating tensions around Ukraine and a fresh regulatory review of China’s tech sector unnerved investors.

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The MSCI Asia-Pacific index fell 2.1% to a three-week low after Russian President Vladimir Putin recognized two self-declared breakaway republics in eastern Ukraine and ordered the dispatch of this which he called “peacekeeping forces” in the regions. The US government has warned that the buildup of troops near Ukraine signals a possible invasion, which the Kremlin has repeatedly denied.

Asia’s main stock gauge is poised to erase its earlier gain in February, also hurt by another selloff from Chinese tech giants including Alibaba Group Holding Ltd., which plunged 3.1% in Hong Kong as China asked companies to verify their financial exposure to the Ant Co. group, in which the e-commerce leader holds a third of the capital.

Hong Kong’s benchmark Hang Seng fell more than 2% and Japan’s Nikkei 225 Stock Average lost 1.7%. All sectors of the MSCI Asia Pacific indicator fell, with energy being among the least affected by the rise in oil prices.

US Condemns Russia’s UN Decision, Reassures Kyiv: Ukraine Update

The United States and the United Kingdom have said they will impose additional sanctions on Russia in response to Putin’s decision, which torpedoed European-mediated peace talks and prompted the State Department to evacuate the staff.

“In fact, we expect sanctions from the West against Russia, which would introduce an increased level of financial instability into global markets,” said Kyle Rodda, analyst at IG Markets Ltd. this is where soaring prices could destroy demand and trigger greater inflation.

The Hang Seng Tech index closed at its lowest since its inception in July 2020 as hopes of ending Chinese regulatory pressure on the sector faded, with traders pointing the finger at everything from warnings about scams in the metaverse to chatter about potential drags on the gaming industry. Still, Tencent erased little-changed business losses after denying facing new scrutiny of its core business.

“Conclusion: China’s political pivot is real and unlikely to ease any time soon, even if valuations are more attractive,” said Wai Ho Leong, strategist at Modular Asset Management in Singapore.

Here are some additional comments from market watchers on the outlook for Asian equities:

Aggravated problems

“I wasn’t looking for Asian equities to outperform the U.S. this year, as I expected Fed tightening to lift real rates and lead to lower portfolio risk this year,” he said. Ilya Spivak, Head of Greater Asia at DailyFX. “Regulatory repression in China certainly appears to worsen this narrative in that it increases the risk of holding exposed assets at a time when overall risk appetite is already diminishing.”

Go to China

At the macro level, the key point to note in Asia is that China is easing monetary policy, so “markets should be able to do well,” Sunil Koul, APAC equity strategist at Goldman Sachs Group Inc., said in a statement. interview with Bloomberg Television. . At the micro level, inflation remains an issue and “we favor upstream rather than downstream areas and stick to companies with better pricing power.”

Goldman Sachs expects Chinese stocks to outperform global markets in 2022, Koul said. Investors “generally agree on a more constructive view of China,” partly because its central bank is easing policy, but also “there is still a gap between the type of mind share and the kind of wallet. As the markets begin to firm up, this will force all investors back.

Wallet covers

Fighting and a prolonged disruption to Russian energy exports “still represent an extreme risk,” Kelvin Tay, chief investment officer for Asia-Pacific at UBS Global Wealth Management, wrote in a note. “Allocations to commodities and energy stocks are an attractive option to help investors hedge portfolio risk” as energy prices are likely to rise even if cool heads prevail given supply dynamics and demand, he added.

Reassess the risk

“We are thinking very carefully about the weeks ahead where we may be able to deploy additional risk,” Ben Powell, chief investment strategist for Asia-Pacific at the BlackRock Investment Institute, told Bloomberg Television. “We’re really trying to clear up some of that confusion and get back to some of our core beliefs like the preference for real assets over dollar assets and overweighting global equities.”

Unwind positions

“Investors continue to unwind their positions, selling products that were popular until last year and buying back hated products,” said Takahiko Sasaki, strategist at Mitsubishi UFJ Trust & Banking Corp. “The crisis in Ukraine only fuels this trend.”

No time for bulls

“With geopolitics subsuming the data this week, it is difficult to build a bullish case for equities in the days ahead,” wrote Jeffrey Halley, senior market analyst for Asia-Pacific at Oanda Corp., in a post. note. Inflationary pressures could also worsen as “a large-scale invasion of Ukraine by Russia will leave many central banks in an itchy dilemma,” he added.

In addition, Chinese markets are under pressure not only from rumors of a tech crackdown, but also from the risk of a reversal in the real estate sector this week as onshore and offshore debt instruments come due, he added.

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