HONG KONG / WASHINGTON, March 23 (Reuters) – Asian stocks reversed previous gains on Chinese markets on Tuesday as investors took advantage of a recent rally in some mainland firms, although declining inflation fears helped consolidate wider sentiment in the region.
Investors are now awaiting a close appearance at Congress by US Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen later that day.
The largest MSCI index of Asia-Pacific equities outside Japan fell 0.57%, affected by a 1.5% drop in Chinese chips.
Gary Ng, an economist at Natixis, said Chinese stocks had recently outperformed other Asian markets, meaning they were due for some sort of correction.
Overnight announcements of new sanctions did not help Chinese action, even though analysts said the markets have become quite accustomed to such developments.
The United States and other states, including the European Union, sanctioned Chinese officials on Monday for human rights abuses in Xinjiang, and Beijing attacked European parliamentarians, diplomats, institutes and families with punitive measures.
Jin Jing, an analyst at China Fortune Securities, said the sanctions affect risk appetite, especially for foreign investors who sold shares through Stock Connect.
Also, persistent concerns about tightening home policies continued to weigh on high-flying, high-rated sectors and stocks as investors became cautious.
Beyond China, Asian equities were mixed after gains on Wall Street on Monday, while investors cheered a break in the recent period of bond yields.
The Dow Jones industrial average rose 0.32%, the S&P 500 gained 0.70%, and the Nasdaq Composite added 1.23%.
Developed markets and emerging Asia have also managed to digest a surprising move by the Turkish president to replace the central bank governor with a critique of high interest rates.
“It doesn’t look like you’ll see much contagion from Turkey,” said Alex Wolf, head of investment strategy for Asia at JP Morgan Private Bank, citing “fairly strong flows in Asia.”
“Investors view emerging markets less as a huge bloc.”
10-year benchmarks rose slightly, producing the last 1.6857%, but down from 1.732% late Friday.
“Risky assets in the US were helped by a drop in Treasury yields to start the week. Yield movements will continue to be closely monitored this week, amid a series of U.S. Treasury auctions and testimonies from Treasury Secretary Yellen and Fed Chairman Powell, “ANZ Research said in a daily note.
Fed Chairman Powell said in statements prepared for a congressional meeting on Tuesday that the US recovery has progressed “faster than generally expected and appears to be consolidating.”
The dollar index against a basket of six major currencies remained close to the beginning of Asian trade at 91.853, after falling by 0.32% on Monday.
But oil has fallen amid heavy supply and worries that new pandemic curbs and the slow launch of vaccines in Europe will slow the recovery in fuel demand.
US West Texas Intermediate to the future of crude oil