Asian stocks mixed after China warned of risks and stagflation
Stocks in Asia were mixed on Monday after ending the week mostly lower on Wall Street, despite the Nasdaq’s first closing above 16,000.
The resurgence of the coronavirus outbreak in the US, Europe and some other regions is weighing on investor sentiment. Meanwhile, comments from China’s central bank advisers on the risks of “stagflation” reinforced concerns about inflationary pressures.
The Shanghai Composite rose 0.6% to 3582.77 while Hong Kong’s Hang Seng lost 0.6% to 24,888.11.
The Nikkei 225 in Tokyo recovered from its earlier losses, rising 0.1% to 29,774.11. In Australia, the S&P/ASX 500 Index slipped 0.6% to 7,353.10.
Stocks fell in India and Taiwan.
The People’s Bank of China faces the challenge of reining in risks from excessive borrowing by real estate developers while keeping the economy growing at a robust pace.
Bloomberg reports that People’s Bank of China (PBOC) advisor Liu Xijen said at a conference over the weekend that China needs to avoid “quasi-stagflation”.
Another economist, Hu Jia Kang, echoed this sentiment, saying that if the pace of economic growth is slower than the rate of inflation, “how then can we formulate a recipe for macro-control?”
Nomura’s Ting Lu noted that controls on mortgage lending, new waves of the coronavirus outbreak, strict policies to combat it and rising prices are all adding to the challenges of Chinese policy.
“A batch of meeting notes and policy reports show that Beijing has become increasingly concerned about stagnant growth and has begun taking measures to change its policy stance in order to prevent growth from slipping further,” Ting said in a report.
On Friday, the S&P 500 fell 0.1% to 4,697.96 and the Dow Jones Industrial Average fell 0.8% to 35601.98.
The Nasdaq rose 0.4% to 16,057.44, its sixth straight gain.
Small cap stocks fell more than the broader market. The Russell 2000 Index lost 0.9% to 2,343.16.
Despite the week’s ups and downs, the S&P 500 and Nasdaq posted weekly gains, while the Dow posted its second consecutive weekly loss.
About 66% of companies in the S&P 500 fell, with financial and energy stocks accounting for a large share of the decline. These losses have outpaced gains in technology and a mix of businesses that rely on consumer spending.
Energy-related stocks fell as US crude oil prices fell 3.7%.
US stocks have mostly risen since early October as companies reported summer earnings much stronger than analysts had expected, with overall earnings growth around 40%. This is much better than the forecast for 23% growth in June.
However, companies face rising raw material costs and supply chain problems that can hinder future profits. Consumers have so far absorbed the price hikes, but analysts fear they may start the economy if high prices persist for too long.
“Stock markets continue to trade at or near record levels in the US, and who can blame them? Jeffrey Haley of OANDA said in a comment that US data remains strong even though inflation noise is rising day by day.
The situation is pressing the Federal Reserve to move faster to rein in ultra-low interest rate policies in order to combat rising prices. Analysts at Bank of America on Friday forecast that the Federal Reserve will likely begin raising its benchmark interest rate in the second quarter of 2022, two quarters earlier than they previously forecast.
Investors are waiting to see if President Joe Biden decides to keep Jerome Powell at the helm of the Federal Reserve.
Biden is expected to announce within days who he will choose for the country’s most powerful economic hub. Many Fed watchers expect Powell to be offered a second term, despite the emergence of Lyle Brainard, a member of the Fed’s Board of Governors, as a leading alternative.
In other trading, US crude oil lost 11 cents to $75.83 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the basis for international pricing, lost 24 cents to $78.65 a barrel.
The US dollar rose to 114.17 JPY from 113.96 JPY on Friday. The euro fell to 1.1274 dollars from 1.1289 dollars.
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