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Asian shares defensive, set for monthly loss on bond rout

Economy Mar 31, 2021 12:50AM ET
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© Reuters. First trading day of stock market in Tokyo
 
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By Swati Pandey

SYDNEY (Reuters) - Asian stocks were on the backfoot on Wednesday while the safe-haven dollar held near a one-year high as Treasury yields resumed their upward march, hitting sentiment even as Chinese data underpinned signs of a solid global economic recovery.

MSCI's broadest index of Asia-Pacific shares outside of Japan eased from a one-week high of 682.36 points to be last at 680.04 and still a fair distance away from an all-time peak of 745.89 touched just last month.

For the month so far, the index is down 1.6% to be on track for its first loss in five months. It is poised for its fourth consecutive quarterly gain though it would be the smallest increase since a 21% fall in March 2020 when the coronavirus pandemic brought the world to a standstill.

"Markets are watching closely to gauge the damage and potential ripple 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 U.S. investment firm Archegos Capital Management LP defaulted on margin calls, putting investors on edge about who else might be exposed.

"For some this serves as a timely reminder that while pandemic risks are abating, financial market risks remain elevated," ANZ added.

The risk-off mood lately has been set off by a surge in bond yields. U.S. Treasury yields skyrocketed 83 basis points just this quarter, the biggest increase in over a decade, making equity valuations look lofty particularly for major tech companies which have borne the brunt of the sell-off.

On Wednesday, 10-year Treasury yields rose as high as 1.742% from Tuesday's 1.708%.

Analysts at Blackrock (NYSE:BLK) said they still liked tech stocks.

"Tech is a diverse sector and the driver of higher yields matters more than the rise itself," Blackrock said in a note to clients.

"Our new nominal theme implies central banks will be slower to raise rates to curb inflation than in the past, supporting our pro-risk stance and preference for tech."

Over a 6-12 month period, Blackrock is "overweight" equities and "underweight" U.S. Treasuries, expecting a nominal increase in yields.

"The 'term premium tantrum' mostly reflects investors requiring higher compensation for the now greater risks to portfolios presented by government bonds and inflation, in our view," Blackrock said.

"This makes equities even more appealing than bonds in a multi-asset context – and suggests any further sell-offs in tech may present opportunities."

Sentiment in Asia remained downbeat despite data showing China's factory activity expanded at a faster-than-expected pace in March while the country's services sector surged too.

Chinese shares started in the red and deepened their losses, with the blue-chip index off 1.1%. Hong Kong's Hang Seng index slipped 0.2%.

Japan's Nikkei slid 0.7% as the country's industrial output fell in February due to declines in the production of cars and electrical machinery.

Australia's benchmark index bucked the trend to be up 1.5%, New Zealand rose 0.8% while South Korea's KOSPI index added 0.1%.

E-mini futures for the S&P 500 (ESc1) were a shade higher.

In foreign exchange markets, currencies were mostly a sea of red against the U.S. dollar which hit a one-year high of 110.48 against the yen as investors bet that massive fiscal stimulus and aggressive vaccinations will boost the U.S. economic recovery. [FRX/]

The dollar is on track for a third straight monthly rise against the yen and its biggest since end-2016.

The dollar index held above 93 after surging as high as 93.357 on Tuesday. It has climbed from close to 90 at the start of March, on course for its best month since 2016.

Australia's dollar edged up to $0.7606, consolidating after its drop to $0.7564 last week, the lowest level seen this year.

In commodities, Brent crude rose 6 cents to $64.20 a barrel while U.S. crude added 27 cents to $60.81 barrel.

Gold prices slipped a touch to 1,679.31 an ounce.

Asian shares defensive, set for monthly loss on bond rout
 

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Comments (4)
masterstroke oo
masterstroke oo Mar 31, 2021 2:01AM ET
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what's defensive about Asian shares. nothing much to make up the headlines again
Elizabeth Alexander
Elizabeth Alexander Mar 31, 2021 12:46AM ET
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Woukd have been nice to print the bond yields
Jokers R Us
Jokers R Us Mar 30, 2021 11:29PM ET
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I guess vaccine hopes wasn't enough then huh
Mike Chen
Mike Chen Mar 30, 2021 9:04PM ET
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China market is a the turning point heading for a bull ride! Buy
 
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