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Asia shares fall as China bank regulator warns of foreign ‘bubble’

Asia-Pacific equities fell after China’s banking regulator voiced concern over bubbles in foreign markets, a day after Wall Street posted its best performance in almost nine months.

Hong Kong’s benchmark Hang Seng index dropped 1.6 per cent on Tuesday, reversing initial gains, while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks shed 2 per cent and Australia’s S&P/ASX 200 dropped 0.4 per cent.

Enthusiasm for US stocks also ebbed following the Chinese regulator’s comments, with futures tipping the S&P 500 to fall 0.3 per cent when trading opens on Wall Street. The FTSE 100 was set to lose 0.2 per cent.

“I’m worried the bubble problem in foreign financial markets will one day pop,” Guo Shuqing, chair of the China Banking and Insurance Regulatory Commission, told local media at a briefing in Beijing. He pointed to gains in US and European markets enabled by ultra-loose monetary policy, which he said had “seriously diverged” from the real economy.

“China’s market is now highly linked to foreign markets and foreign capital continues to flow in”, Guo said, according to China’s state-backed Securities Times, in a nod to global investors’ appetite for Chinese stocks and bonds. He added that while China could handle the scale and speed of inflows, “we must prevent volatility in [China’s] domestic financial market from becoming too great”.

Japan’s Topix dropped 0.4 per cent, damped by finalised data that showed capital expenditure in the fourth quarter fell almost 5 per cent from a year ago. That was a sharp departure from a preliminary reading showing a 4.5 per cent rise, and raised questions about the strength of the country’s economic recovery.

The moves in Asia followed a banner session for Wall Street that closed with a 2.4 per cent rise for the blue-chip S&P 500 and a 3 per cent rally for the technology-focused Nasdaq.

Those gains came as government debt markets extended their rebound after last week’s sell-off. The yield on the 5-year US Treasury, which was at the centre of the turmoil, dropped 0.03 percentage points on Monday. The 5-year yield was flat at 0.695 per cent in Asia trading on Tuesday, as was the 10-year yield at 1.419 per cent. Bond yields fall as prices rise.

“While it may be tempting to conclude that the equity market is getting used to higher yields, this also means that this takes away one of the hurdles for yields to keep moving higher,” said Robert Carnell, head of Asia-Pacific research at ING. “What would undermine an uptrend in bond yields would be a big collapse in risk appetite.”

Australian bond yields ticked up after the Reserve Bank of Australia kept its cash rate target at a record low of 0.1 per cent, with the 10-year yield rising 0.05 percentage points to 1.703 per cent. That followed a tumble of almost 0.25 percentage points on Monday after the RBA doubled the size of its regular purchases of long-term bonds as borrowing costs soared.

“Australia has shown strong external resilience despite an increase in trade tensions with China, the Covid pandemic and earlier from the downturn in global trade engineered by Trump-era tariffs,” said Josh Williamson, chief Australia economist at Citigroup, which recently upgraded the country’s fourth-quarter growth forecast to 2.9 per cent.

In commodities markets, oil prices continued to drop ahead of an Opec+ meeting this week that could result in an increase in supply. Brent crude, the international benchmark, was down 1.1 per cent at $62.99 a barrel while West Texas Intermediate, the US marker, fell by roughly the same amount to $59.99.

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