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Regional stocks took a weak lead-in from Wall Street after stronger-than-expected U.S. retail sales data pointed to more potential upside pressure for inflation, presenting a hawkish outlook for interest rates in the world’s largest economy.
Weak home prices data added to concerns over China’s struggling property sector, weighing on local stocks, while fears of the Fed also drove steep losses in Asian technology stocks.
China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell 0.4% and 0.5%, respectively, while Hong Kong’s Hang Seng index lost 1.2%. All three indexes marked a fourth straight day of declines, and were also trading close to their weakest levels for the year.
Data on Wednesday showed that Chinese home prices declined further in July, as staggered policy support failed to stimulate the sector. The reading drove increased concerns over a potential debt crisis in the sector, especially as major developer Country Garden Holdings (HK:2007) struggles to meet its debt obligations.
Shares of China’s biggest property developer sank 2.5% to a new record low on Wednesday, extending losses after it forecast a massive loss for the first half of 2023, and as it suspended trading in 11 of its onshore bonds.
Markets also feared contagion from a potential Country Garden default, particularly to the real estate developer’s biggest bond holders. Reports said that major Chinese trust Zhongrong International Trust Co had missed several of its repayment obligations due to its high real estate exposure.
An unexpected interest rate cut by the People’s Bank of China on Tuesday did little to improve sentiment towards the country, with analysts stating that the bank needed to do more in order to stimulate growth.
But while Chinese officials have vowed to release more policy support, they have so far offered scant details on how new stimulus measures will be released.
Concerns over China spilled over into other Asian markets, with Australia’s ASX 200 falling 1.5% as losses in bank and mining stocks largely offsetting some positive earnings reports.
In addition to headwinds from China, Asian technology stocks were also hit by a spike in U.S. Treasury yields after stronger-than-expected retail sales data for July.
South Korea’s KOSPI lost 1.3%, while Japan’s Nikkei 225 index slid 1%, largely reversing gains made on positive second-quarter GDP data on Tuesday.
The U.S. retail sales data comes on the heels of strong inflation readings for July, and could potentially give the Fed more impetus to remain hawkish in the coming months. Such a scenario bodes poorly for risk-driven assets, particularly tech stocks.
Futures for India’s Nifty 50 index pointed to a weak open following substantially hotter-than-expected inflation readings for July, which are expected to keep local monetary policy restrictive.
