Asian Stocks Decline as Chinese Market Continues to Slide
Asian stocks witnessed a decline on Monday, with Chinese shares leading the losses once again, despite the market regulator's recent pledge to crack down on abuses and protect small investors. The Shenzhen A-shares index took the biggest hit, plummeting by 5.4%, while the Shanghai Composite index slipped over 2% before making a partial recovery.
The China Securities Regulatory Commission issued a statement on Sunday vowing to increase enforcement measures against market manipulation and malicious short selling, as well as guide more medium and long-term funds into the market. However, this announcement failed to reassure investors who have been pulling their money out of Chinese stocks for months now. Last week, Chinese stocks encountered their worst week in five years.
Adding to the negative sentiment, a private-sector survey released on Monday indicated that China's services sector grew at a slightly slower rate in January, with the purchasing managers' index (PMI) falling from 52.9 in December to 52.7. Any PMI above 50 signifies expansion compared to the previous month.
In other parts of Asia, the Nikkei 225 index in Tokyo managed to climb by 0.6% to reach 36,390.31. Meanwhile, Australia's S&P/ASX 200 dropped by 1% to 7,623.30, and South Korea's Kospi shed 0.6% to settle at 2,599.62.
On Friday, despite the majority of stocks falling on Wall Street, big tech stocks once again boosted the market to a record high. Meta Platforms and Amazon played a crucial role in driving the S&P 500 index up by 1.1% to close at 4,958.61. The Nasdaq composite also surged by 1.7%. However, the Dow Jones Industrial Average, which focuses less on tech stocks, saw a more modest increase of 0.3%.
The bond market's high yields exerted pressure on stocks as a report revealed that U.S. employers had hired significantly more workers in January than economists had anticipated. While this is positive for workers and helps mitigate the risk of a recession, it could contribute to upward pressure on inflation and prompt the Federal Reserve to delay interest rate cuts. The anticipation of rate cuts has been a driving force behind the record high levels of the U.S. stock market. However, Federal Reserve Chair Jerome Powell recently indicated that cuts are unlikely to occur as soon as traders had hoped.
Last week witnessed a flurry of profit reports, amid which Meta Platforms saw a 20.3% surge in its stock price after reporting stronger-than-expected profits for the latest quarter and announcing plans to pay dividends to investors. Amazon also experienced a rally of 7.9% as it exceeded profit and revenue expectations. Both companies are part of the select group of Big Tech stocks known as the 'Magnificent Seven,' which have played a significant role in driving the market to record levels. However, the high expectations surrounding their growth necessitate meeting targets to justify their soaring stock prices.
Despite reporting better-than-expected profits, Apple's stock slipped by 0.5%. On the other hand, Charter Communications faced a sharp decline of 16.5%, marking the highest loss in the S&P 500, after it reported weaker profits for the latest quarter than anticipated.
In the commodities market, benchmark U.S. crude oil saw a rise of 39 cents to reach $72.67 per barrel on the New York Mercantile Exchange, while Brent crude, the international benchmark, rose by 52 cents to settle at $77.85 per barrel.
In currency trading, the U.S. dollar slightly weakened against the Japanese yen, falling to 148.38 yen from 148.43 yen. Similarly, the euro dipped slightly, costing $1.0779 compared to $1.0784.
Despite the attempts made by regulators to address market concerns, the Chinese stock market continues to face headwinds, causing a ripple effect throughout Asia. The performance of major tech stocks in the U.S. is also likely to impact global market sentiment in the coming weeks.
