Asian shares were on the back foot on Monday as Covid protests and unrest in China saw investors retreat from riskier assets.
The dollar climbed as clashes broke out in several Chinese cities with protesters railing against Beijing’s anti-Covid policies, sending the Chinese yuan to a more than two-week low against the safe-haven greenback.
The unusual show of dissent in China saw Japan’s Nikkei share average slip for a second straight session, while tech stocks declined in line with their Wall Street peers.
Read more: Chinese Stocks Sink After Covid Cases Rise, Protests Over Policy
The Nikkei ended the day down 0.42% at 28,162.83. The index closed 0.35% lower on Friday after hitting a more than two-month high in the session before. The broader Topix index fell 0.68%, or 13.69 points, to 2,004.31.
The sell-off in Japanese stocks accelerated after Chinese and Hong Kong equity markets opened sharply lower, with the Hang Seng index tumbling 4.2% at one point.
“This news [from China] is definitely a negative for Japanese stocks, especially the tech sector, which has large exposure to Chinese markets and supply chains,” said Kenji Abe, an equity strategist at Daiwa.
“A slowdown in the Chinese economy will have a big impact on the Japanese stock market.”
Tech stocks were already under pressure after Apple fell sharply on Friday following a report that Covid restrictions would further cut output at its flagship iPhone factory in China. The Philadelphia SE Semiconductor Index also sagged 1.26% on Friday.
Startup investor SoftBank Group – which is heavily invested in Chinese tech companies including Alibaba and Didi – slid 0.61%.
The protests have flared across China and spread to several cities in the wake of an apartment fire that killed 10 people in Urumqi in the country’s far west.
Hundreds of demonstrators and police clashed in Shanghai on Sunday night leaving investors worried over how the government in Beijing will react to the the wave of civil disobedience with Covid cases still rising.
“We’re really looking at the government response to what’s happening … the government response is so unpredictable, and of course that just means derisking,” said Chris Weston, head of research at Pepperstone.
The offshore yuan fell to an over two-week low in Asian trading, and was last roughly 0.4% lower at 7.2242 per dollar.
The Hang Seng Index dropped 1.57%, or 275.64 points, to 17,297.94.
The Shanghai Composite Index dipped 0.75%, or 23.14 points, to 3,078.55, while the Shenzhen Composite Index on China’s second exchange dropped 0.51%, or 10.11 points, to 1,974.07.
Elsewhere across the region, Indian stocks edged ahead with Mumbai’s signature Nifty 50 index up 0.27%, or 50.00 points, to close at 18,562.75.
The latest developments in China have put a pause on the US dollar’s decline, which had been softening over the past few weeks on hopes that the Federal Reserve would soon slow its pace of rate hikes – a view that was supported by the November meeting minutes released last week.
Against a basket of currencies, the US dollar index rose 0.07% to 106.41, edging away from its recent three-month low of 105.30.
Fed Chair Jerome Powell is due to speak on the outlook for the US economy and the labour market at a Brookings Institution event on Wednesday, which could provide more clues on the outlook for US monetary policy.
Tokyo – Nikkei 225 < DOWN 0.42% at 28,162.83 (close)
Hong Kong – Hang Seng Index < DOWN 1.57% at 17,297.94 (close)
Shanghai – Composite < DOWN 0.75% at 3,078.55 (close)
London – FTSE 100 < DOWN 0.71% at 7,433.73 (0935 GMT)
New York – Dow > UP 0.45% at 34,347.03 (Friday close)
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