Asian equities fall for no apparent reason

Asia equity markets have mostly fallen today, with North Asian markets leading the charge lower. This is in strong contrast to North America, where strong earnings and benign inflation expectations saw the leading indices rise once again to record highs. The S&P 500 rose by 0.42%, while the Nasdaq was weighed down by Amazon’s results but still finished 0.11% higher, and the Dow Jones climbed by 0.43%. All three indexes are wobbling in Asia, though, with futures on the Nasdaq plummeting by 1.30% in sympathy with China, while the S&P 500 futures have fallen 0.75% and the Dow Jones futures are 0.32% lower.


Meanwhile, the Nikkei 225 has slumped by 1.60%, with the Kospi falling 0.80%. In China, the Shanghai Composite is 0.35% lower, but the CSI 300 has tumbled by 1.30%, with Hong Kong plummeting by nearly 2.0%. Singapore has risen by 0.20%, but Kuala Lumpur, falling into more political and Covid disarray, has declined 0.40%, while Taipei is 0.20% down. Jakarta and Ho Chi Minh are higher by 0.45%, with Manila 0.10% higher, and Bangkok has risen by 0.20%. Australian markets are slightly lower, with the ASX 200 and All Ordinaries down by 0.20%.


The North Asia to ASEAN divergence is intriguing. The fact the tech-heavy Nasdaq futures have led US index futures lower suggests that they, and China, Japan, and South Korean markets are suffering a dose of pre-weekend China regulatory risk jitters. Notably, there is likely to be a lot of Covid bad news priced into ASEAN markets. With delta-variant nerves rising in North Asia, the combined China and delta risk may be causing some rotation into ASEAN markets as a defensive position.


A strong rally by the Sensex this afternoon in India would suggest that investors are rotating out of China, but unwilling to leave the Asian story, are looking for pastures new in other parts of the region. Going forward, depending on how the regulatory risk landscape evolves vis-a-vis China, ASEAN and India equity markets may find more friends from the international investor community than they have of late.