Most Asian stocks fell on Wednesday, extending recent declines as heightened geopolitical uncertainty over the U.S.’ demands for Greenland unsettled investors.
Brewing concerns over weak fiscal conditions in the developed world, specifically Japan, also weighed on regional markets. Wall Street provided weak overnight cues, after the S&P 500 slid 2%.
Still, losses in Asian markets were less pronounced on Wednesday than earlier in the week, as steep declines in valuations also spurred bargain buying.
S&P 500 Futures rose 0.3% in Asian trade, with focus turning to a host of upcoming fourth-quarter earnings due this week and the next.
Japanese stocks fall as fiscal concerns grow; BOJ awaited
Japan’s Nikkei 225 fell 0.6%, while the TOPIX index shed over 1%.
Local markets were spooked by an accelerating selloff in Japanese government bonds over the past week, amid concerns over increased fiscal spending and tax cuts under Prime Minister Sanae Takaichi.
Of particular concern was Takaichi’s proposed two-year suspension on an 8% sales tax on food and beverages, which OCBC analysts said could cost around 0.75% of Japan’s gross domestic product in lost revenue.
"Japan is in denial. If you think you can campaign on an end to "excessive" austerity with debt at 240% of GDP, markets will teach you a harsh lesson," Robin Brooks, former Chief FX Strategist at Goldman Sachs said in a social media post.
Local markets took little support from a report that Japan’s second-largest bank, Sumitomo Mitsui Financial (TYO:8316), was planning to as much as double its government bond portfolio.
Shares of the lender fell 3.2% following the report.
Takaichi called a snap election on Monday, running on a platform of more stimulus and tax cuts with the goal of shoring up Japanese economic growth.
But she also largely balked at questions over how Tokyo will fund her programs, given that Tokyo’s debt burden is already the largest in the developed world.
Yields on 10-year Japanese government bonds surged to their highest levels in 27 years of recorded data this week, reflecting increased investor anxiety over Japan’s fiscal prospects.
The scale of the bond selldown was so large that Japanese authorities advised markets to remain calm.
Japanese markets had initially cheered Takaichi’s fiscal plans. But they faltered this week on rising concerns over how she will fund said plans.
Asian markets subdued, China gains
Broader Asian markets mostly retreated as global geopolitical uncertainty remained in play. Focus was on U.S. President Donald Trump’s upcoming appearance at the World Economic Forum in Davos, Switzerland, after he threatened to tariff eight European countries until they ceded Greenland to the United States.
Trump is expected to speak later on Wednesday. His tariff threats battered markets this week.
In Asia, Australia’s ASX 200 fell 0.4%, while Singapore’s Straits Times index shed 0.6%. Hong Kong’s Hang Seng index shed 0.2%.
South Korea’s KOSPI fell 0.8%, pulling back from record highs hit earlier this week. But Hyundai Motor (KS:005380)– a key driver of the KOSPI’s recent rally– surged as much as 10% as investors remained upbeat on the automakers prospects in physical artificial intelligence and robotics.
India’s Nifty 50 index fell 0.5% to a three-month low as investors remained uncertain over the prospect of a India-U.S. trade deal.
Muted earnings from Reliance Industries Ltd (NSE:RELI) and ICICI Bank Ltd (NSE:ICBK) also weighed.
Chinese markets outperformed, with the mainland Shanghai Shenzhen CSI 300 and Shanghai Composite indexes rising 0.7% and 0.3%, respectively.
Local markets were buoyed by bets on more stimulus measures from Beijing, especially after fourth quarter gross domestic product data pointed to a continued cooling in economic growth.
Mainland AI and industrial names were also supported by continued optimism over China’s prospects in the fast-growing industry, as Beijing pushes for complete self-reliance in AI.
Source: Investing