Asia-Pacific Shares Led Lower by China Weakness, Rising Rate Fears

In China, the Shanghai Index settled at 3642.44, down 53.72 or -1.45% and in Australia, the S&P/ASX 200 finished at 6780.90, down 12.90 or -0.19%.

China Blue-Chips Slump Most in Nearly 7 Months on Valuation, Policy Tightening Concerns

China’s blue-chip index posted its biggest daily drop in nearly seven months on Monday after touching record highs last week, as investors fretted over high stock valuations and the risk of policy tightening.

China left its benchmark lending rate for corporate and household loans unchanged for a 10^th straight month on Saturday, but speculation has been rising that authorities may begin to adopt a tighter policy stance.

Monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalize the shift with policy rate increases in the next few months,” said analysts at Capital Economics.

The consumer staples sector slumped 5.96%, the healthcare sub-index dropped 5.15% and the financial sector sub-index shed 1.75%.

South Korea Shares Fall on US Yield Spike, China Policy Tightening Woes

South Korean shares ended lower on Monday, reversing early gains, as strong local exports data were offset by a spike in U.S. Treasury yields and concerns about policy tightening in China. The won weakened, while the benchmark bond yield rose.

Most heavyweights slid, with chip giant Samsung Electronics down 0.48%, while internet giant Naver and LG Chem tumbled 2.89% and 2.66%, respectively. Samsung’s peer SK Hynix, however, rose 2.63%.

U.S. 10-year Treasury yields spiked on expectations that massive government stimulus would lead to higher growth and inflation, while there are mounting speculation that the Chinese authorities may begin to adopt a tighter policy stance.

The Bank of Korea is expected to keep interest rates at a record low on Thursday, as a sluggish labor market keeps policymakers under pressure.

Japanese Shares Jump as Recovery Hopes Lift Cheap Cyclical Stocks

Japanese shares jumped on Monday, snapping a three-day losing streak, as optimism on economic recovery from the pandemic prompted fresh buying in materials, travel-related and other cheap cyclical stocks.

Investors scooped up cyclical shares with cheap valuation including Yokohama Rubber and Sumitomo Metal, which gained 8.9% and 7.2%, respectively.

Travel-related shares also advanced as investors bet on a continued recovery in the global economy with COVID-19 vaccination programs gathering pace across the world.