Broad declines were witnessed in Asia stocks on Wednesday, accompanied by a slip in the Australian dollar, following unexpectedly weak domestic inflation figures. Simultaneously, short-dated Treasury yields remained elevated, anticipating a decision from the Federal Reserve on interest rates.
Chinese markets faced instability as an official factory survey revealed a fourth consecutive month of contraction in China’s manufacturing activity for January. The broader Asia-Pacific shares, excluding Japan, experienced a 0.5% decline, signaling a potential monthly loss of 5%, breaking a two-month winning streak.
Concerns over the authorities’ limited stimulus efforts to bolster the economy fueled a significant sell-off in Chinese markets, contributing to the downturn in Asia stocks and leading to diminishing investor confidence. Ongoing worries about China’s troubled property sector, particularly the unfolding liquidation of China Evergrande Group, further contributed to the negative sentiment.
China’s blue-chip index, which hit its lowest point since 2019 earlier in the month, registered a 0.7% decline for the day and a roughly 6% decrease for January, marking the sixth consecutive monthly decline. Hong Kong’s Hang Seng Index suffered a loss of over 1%, impacted by challenges in the property and technology sectors, marking its worst January performance since 2016.
To counter the slide in the stock market, Beijing intervened by implementing measures such as a substantial reduction in banks’ reserve requirements. Mark Matthews, Bank Julius Baer’s Head of Research for Asia, noted a clear shift in the Chinese authorities’ stance, indicating a more proactive approach to stabilizing the market.
Poised to conclude the month with a remarkable gain of over 7%, Japan’s Nikkei, a standout performer in Asia, achieved its best January performance in more than a decade. Despite a 0.5% decline on the day, expectations rose for an imminent pivot in monetary policy by the Bank of Japan (BOJ).
Following the release of the minutes from the central bank’s January policy meeting, discussions revealed considerations about a potential exit from negative interest rates and scenarios for phasing out the massive stimulus program. Nevertheless, the currency was on track for a monthly loss exceeding 4%, influenced by a resurgent dollar and notable interest rate differentials between Japan and the U.S.
The Australian dollar faced a 0.6% decrease to $0.6564 after Wednesday’s data revealed a slower-than-expected Australian consumer price inflation in the fourth quarter, hitting a two-year low. This development heightened expectations of imminent rate cuts.