Beijing’s regulatory crackdowns on a range of private companies have hurt stocks in various sectors over the past few days, with heavy selling hammering the country’s top tech stocks and now affecting into currency and debt markets.
The benchmark Shanghai index, which fell as much as 2% earlier in the session, recouped some losses to trade 0.6%
lower. Chinese 10-year government bond futures were down 0.35%.
“Chinese regulatory tightening is a structural change to the affected Chinese companies, and will produce a lasting impact on their business model and profitability,” said Wei-Liang Chang, macro strategist (FX and Credit) at DBS Bank.
“That said, we do not see a meaningful deceleration in Southeast Asian growth, and expect spillovers through the
financial market channel to be transitory.” Stocks in Taiwan and Singapore lost 1.2% and 0.3%, respectively, while Philippines dropped as much as 2.3%.
Meanwhile, the International Monetary Fund on Tuesday cut this year’s economic growth forecast for emerging Asia, as a spike in coronavirus cases from new variants and slow vaccinations cloud the region’s recovery prospects.
The Philippine peso led gains among currencies, as U.S. Treasury yields tumbled overnight to pull the greenback
lower on lingering concerns about the fast-spreading Delta virus variant that could thwart global economic growth.
The Singapore dollar, Taiwan dollar and Malaysian ringgit traded flat to 0.1% higher. All eyes were on the Fed’s policy meeting and a press conference from Chair Jerome Powell in which markets will be looking for hints on the growth outlook and a timeline on tapering bond-purchases.
“Emerging markets are very sensitive to the direction of capital flows. That means the greatest risk for a lot of EM
currencies is a Fed that turns hawkish more quickly,” said Daniel Dubrovsky, strategist at IG.
