For Swati Pandey
SYDNEY, Mar 31 (Reuters) – Asian stocks were down on Wednesday as the dollar’s safe-haven value hovered near a one-year high and U.S. Treasury yields picked up again, broadening caution even as official Chinese data they underpinned the signs of a strong global economic recovery.
The MSCI Asia Pacific Stock Index excluding Japan was down from a week-long high of 682.36 to stand at 680.04 at the time of writing, still a considerable distance from the all-time high of 745.89. points reached just last month.
So far this month, the index is down 1.6% and is on track for its first loss in five months. However, it is about to achieve its fourth consecutive quarterly gain, although it would be the smallest increase since the 21% drop in March 2020, when the coronavirus pandemic paralyzed the world.
“Markets are watching closely to gauge the damage and possible dominance effects caused by the Archegos Capital Management crisis,” ANZ analysts wrote in a note.
Some global banks are facing billions of dollars in losses after the US investment fund Archegos Capital Management LP defaulted on margin calls, putting investors on edge over who else might be exposed.
“For some this is a timely reminder that while the risks of the pandemic are decreasing, the risks of the financial market remain high,” added ANZ.
The preference to avoid risk has recently been driven by rising bond yields. US Treasury yields have soared 83 basis points this quarter alone, the biggest increase in more than a decade, making equity valuations appear high, especially for big tech companies, which have supported most of the sales.
On Wednesday, 10-year US Treasury yields rose to 1.742% from 1.708% on Tuesday.
However, analysts at Blackrock said they still saw potential in tech stocks.
“Technology is a diverse industry and what drives increased returns matters more than the increase itself,” Blackrock said in a note to clients.
“Our new nominal theme implies that central banks will be slower than in the past to raise rates to curb inflation, which supports our risk-taking stance and our preference for technology.”
Over a 6-12 month period, Blackrock maintains an “overweight” rating on equities and “underweight” on US Treasuries, expecting a nominal increase in yields.
“The ‘forward rate tantrum’ primarily reflects investors demanding greater compensation for the now greater risks posed by government bond portfolios and inflation, in our view,” Blackrock said.
“This makes equities even more attractive than bonds in a multi-asset setting, and suggests that any upsell in the tech sector may present opportunities.”
Appetite for risk positions in Asia remained low despite data showing that China’s factory activity expanded at a faster-than-expected pace in March, while the country’s service sector also increased.
The Chinese price started in the red and deepened its losses, with the large stock index losing 1.1%. Hong Kong’s Hang Seng Index was down 0.2%.
The Japanese Nikkei index lost 0.7%, after it was known that the country’s industrial production fell in February due to the decrease in the production of automobiles and electrical machinery.
Australia’s benchmark index deviated from the regional trend and rose 1.5%, while New Zealand stocks rose 0.8% and South Korea’s KOSPI index added 0.1%.
S&P 500 E-mini futures were slightly higher.
In currency markets, most currencies plunged into a sea of red against the US dollar, which hit a one-year high of 110.48 against the yen, as investors are betting that massive fiscal stimulus and Active vaccination will boost America’s economic recovery. [FRX/]
The dollar is heading for a third consecutive monthly rise against the yen and the biggest since late 2016.
The dollar index remained above 93 after rising to 93,357 on Tuesday. It has risen from close to 90 in early March, on the way to its best month since 2016.
The Australian dollar rose to $ 0.7606, consolidating after falling to $ 0.7564 last week, the lowest level seen this year.
In commodities, Brent crude was up 6 cents at $ 64.20 a barrel, while US crude was up 27 cents at $ 60.81 a barrel.
The price of gold fell slightly to $ 1,679.31 an ounce.
(Information from Swati Pandey from Sydney and Alwyn Scott from New York; edited by Sam Holmes & Shri Navaratnam; translated by Darío Fernández in the Gdansk newsroom)