Asian stocks slammed by U.S.-China tensions, Fed jitters

By Ambar Warrick 

Investing.com -- Most Asian stock markets fell on Monday amid fears of worsening Sino-U.S. relations after the shooting down of a suspected Chinese spy balloon, while markets also reassessed their outlook on U.S. monetary policy following strong payrolls data.

Chinese markets were among the worst performers for the day, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes losing 1.7% and 1%, respectively. Concerns over U.S.-China ties grew after Beijing condemned the shooting down of a suspected Chinese spy balloon off the coast of South Carolina over the weekend. China claimed the balloon had accidentally drifted into U.S. airspace, and was used for meteorological purposes.

Hong Kong’s Hang Seng index also slumped 2.2%, with major technology stocks logging large losses. Other tech-heavy indexes dropped on Monday, with South Korea’s KOSPI and the Taiwan Weighted index down about 1% each.

Sentiment towards Asian stocks worsened substantially after data on Friday showed U.S. nonfarm payrolls unexpectedly spiked in January. The reading showed that U.S. employment remained robust despite cooling economic activity, which gives the Federal Reserve more headroom to keep raising interest rates.

Markets also feared that U.S. inflation could remain stubbornly high due to strength in employment. Rising interest rates weighed heavily on Asian markets through 2022 as the amount of foreign capital flowing into the region slowed down, and as local central banks also kept pace with the Fed. But an economic recovery in China and an eventual pause in the Fed's hiking cycle is expected to eventually benefit regional stocks.

Asian markets had a strong run-up to Friday's reading, which also spurred some profit taking on Monday. 

Indian stocks continued their descent, with the Nifty 50 and BSE Sensex 30 down 0.4% each. Losses in firms under conglomerate Adani Group deepened substantially, with Adani Enterprises Ltd (NS:ADEL), its flagship firm, having lost over 50% of its value after short-seller Hindenburg Research raised concerns over its valuation. The stock fell over 7% on Monday.

Japanese stocks were the sole outliers for the day, with the Nikkei 225 index rising 0.7% after a report pegged Bank of Japan Deputy Governor Masayoshi Amamiya as next in line to lead the central bank.

Amamiya is seen as a proponent of the BOJ’s ultra-loose monetary policy, which is likely to benefit Japanese stocks by keeping liquidity loose for longer. 

Australia’s ASX 200 index fell 0.2%. But shares of gold miner Newcrest Mining Ltd (ASX:NCM) jumped nearly 11% after it received a $17 billion takeover offer from global peer Newmont Corp (NYSE:NEM).