On Tuesday, Asian stock markets faced further declines, mainly due to discouraging business activity indicators from Japan and Australia. However, China’s markets showed signs of recovery from pre-pandemic lows as a state-run fund initiated the acquisition of certain equities.
Persistent concerns surrounding the Israel-Hamas conflict kept market optimism in check. Although diplomatic missions aimed at de-escalating the conflict demonstrated some progress, missile exchanges between Israel and Gaza continued, contributing to market uncertainty. There were also concerns regarding a potential Israeli ground assault on Gaza, which could exacerbate the situation.
Meanwhile, a decrease in Treasury yields, following their multi-year peak earlier this month, offered modest support to stock markets. Nevertheless, the technology sector remained under pressure.
Weak PMIs Impact Japan and Australia
The Nikkei 225 in Japan fell by 0.4%, while the TOPIX index experienced a 1% decline. This was primarily due to the Purchasing Managers’ Index (PMI) data, which revealed that Japanese manufacturing activity contracted more than anticipated in October, and the services sector’s growth deteriorated. These readings pointed to persistent weaknesses in Asia’s second-largest economy, particularly in dealing with resurging inflation.
In contrast, Australia’s ASX 200 managed to rise by 0.1%, recovering from initial losses and aligning itself with Chinese stocks. However, PMI data indicated that both Australian manufacturing and services activities remained in contraction throughout October. Attention now turns to the forthcoming PMI readings from the United States.
Chinese Markets Recover Amid State Intervention
China’s Shanghai Shenzhen CSI 300 index witnessed a 0.4% increase, recovering from its lowest point since January 2019. Simultaneously, the Shanghai Composite registered a 0.7% increase, rebounding from an 11-month low. Central Huijin Investment Co, a Chinese sovereign fund, announced its purchase of certain exchange-traded funds (ETFs) this week to bolster local stock markets. The fund also signaled its intention to increase its local ETF holdings, thereby providing support to Chinese equities.
China’s stock markets had previously faced significant challenges, including concerns about a property market crisis and a sluggish economic recovery this year. However, signs of government intervention seemed to offer some relief.
Tech Sector Under Pressure from High Yields and Earnings Anticipation
The technology-heavy indexes remained the weakest performers of the day, primarily due to the persistent pressure from high yields. Traders were cautious as they anticipated the earnings reports of key U.S. tech giants such as Microsoft Corporation (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), Intel Corporation (NASDAQ: INTC), and Amazon (NASDAQ: AMZN) later in the week. They were keen to see if the steady earnings growth from earlier this year continued through the third quarter. Despite some yield retracement, the multi-year highs remained in sight, as the market prepared for potentially extended higher U.S. interest rates.
Hong Kong’s Hang Seng index recorded a 0.5% drop, recovering slightly from an 11-month low earlier in the session. Nevertheless, the index remained pressured by losses in heavyweight technology stocks. South Korea’s KOSPI fell by 0.2%, and the Taiwan Weighted index sank by 0.8%. Taiwan shares were further rattled by reports of China initiating a tax probe into Apple Inc (NASDAQ: AAPL) supplier Foxconn Technology Co Ltd (TW: 2354).
