Asia-Pacific Markets: Called Lower Amid US Stock Futures Weakness, Bubble-Warning in China

An early look at the Asia-Pacific stock markets on Monday has Australian shares poised to open lower, with traders mostly reacting to the sharp sell-off in U.S. equities on Friday amid a battle between Wall Street hedge funds and aggressive retail investors.

Domestically, a fresh lockdown in the country’s fourth-most populous city was likely to weigh on domestic risk appetite.

According to reports from over the weekend, the country’s 14-day streak of no locally acquired cases came to an end as a security guard working in hotel quarantine in Perth tested positive for COVID-19, prompting authorities to order a five-day lockdown in the city.

Weekly Cash Market Performance

In the cash market last week, Japan’s Nikkei 225 Index settled at 27663.39, down 986.06 or -3.38%. South Korea’s KOSPI finished at 2976.21, down 164.42 or -5.24% and Hong Kong’s Hang Seng Index closed at 28283.71, down 1164.14 or -3.95%.

In China, the benchmark Shanghai Index settled the week at 3483.07, down 123.68 or -3.43% and Australia’s S&P/ASX 200 Index finished at 6607.40, down 193.00 or -2.84%.

US Stock Market to Set Early Tone in Asia-Pacific Markets

U.S. stock index futures are expected to dictate the direction of the markets in the Asia-Pacific region on Monday as the major U.S. averages try to claw back some of the losses from the market’s worst week since October.

Last week, all three major U.S. averages dropped more than 3% for their worst weekly performance since October. The Dow and S&P also posted losses for January – the first negative month in four – although the NASDAQ did manage to post a gain for the month.

China Asset-Bubble Warning Threatens Stock Frenzy in Hong Kong

While U.S. traders focus on the possibility of more stock market regulation in the wake of volatility in heavily shorted stocks, and a growing skirmish between hedge funds and aggressive, organized retail traders, Bloomberg wrote, “A chill swept through Chinese financial markets after the central bank withdrew cash from the banking system and an official warned about bubbles.”

The People’s Bank of China drained about $12 billion via open-market operations on Tuesday. The decision was unusual in the weeks before the Lunar New Year holiday, which in 2021 falls in mid-February, because residents typically need more cash to pay for seasonal travel and gifts. It also went against recent reports in Chinese newspapers that liquidity wouldn’t be tightened before the holidays.

Bloomberg added, “While Tuesday’s withdrawal was small in isolation, it added to signs that Beijing is growing wary of how cheap and plentiful liquidity has stoked excess in markets. PBOC adviser Ma Jun told local media that risks of asset bubbles – such as in the stock or property market – will remain if China doesn’t shift its focus toward job growth and inflation management instead.”

The news likely contributed to last week’s 3.43% loss in the Shanghai Index and the 3.9% decline in Hong Kong’s Hang Seng Index.

For a look at all of today’s economic events, check out our economic calendar.