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Markets bruised by long-short battle

(ATF) Hong Kong: Asian markets retreated as sentiment was hit by the intensifying tussle between short-selling hedge funds and long retail investors, while tightening liquidity battered Chinese stocks.

In a conflict reminiscent of the 2011 Occupy Wall Street movement – where tensions erupted over social and economic inequality and the undue influence of corporations on government – retail investors are piling into highly shorted stocks in a bid to emulate the squeeze that has driven GameStop shares up 17-fold in little more than two weeks.

The money-market rate in China surged to the highest in almost six years, reflecting tight liquidity in the financial system amid worries the People’s Bank of China (PBOC) may be tightening policy as the world’s second-largest economy continues to recover.

Japan’s Nikkei 225 index tumbled 1.89%, Australia’s S&P ASX 200 dipped 0.64%, Hong Kong’s Hang Seng index retreated 0.94% and China’s CSI300 slipped 0.47%. Regionally, the MSCI Asia Pacific index dropped 1.59%.

Hopes raised

“The dizzying gains attained over the past few days by the likes of GME, AMC and NAKD on the back of Reddit-engineered short squeezes have raised hopes of similar gains elsewhere,” said Arthur Budaghyan, Chief Emerging Markets Strategist at BCA Research. “Instead, the message from market sentiment and positioning indicators is that equities are ripe for a correction.

“Additionally, short interest in the median equity currently stands near all-time lows. Thus, the dramatic short squeezes recently observed are idiosyncratic, company-specific conditions that cannot be replicated in the market more broadly.”

Tensions about Covid vaccine rollout delays and a spike in cases continue to niggle investors, as the global infection count exceeds 101.5 million and the death count nears 2.2 million.

China’s 7-day depository repo rate, seen as a key benchmark and focus of monetary policy, has jumped over 100 basis points to a two-year high in the past two weeks.

With the economy now back on track, the PBOC is shifting its focus away from supporting growth back towards reining in financial risks. It has already allowed interbank rates to return close to pre-pandemic levels,” said Julian Evans-Pritchard, Senior China Economist, at Capital Economics.

“And a more hawkish tone at the last month’s Central Economic Work Conference suggests that this tightening will be formalized with policy rate hikes this year. “

Gold rallied in the risk-off environment with a 1% jump to $1,863 per ounce. Worries about increased supplies pressured US Treasuries, with the 10-year yield rising 2 basis points to 1.07%. The dollar remained flat just around the 90 level against a basket of currencies but the yuan rose attracted by the high onshore rates. It was last seen at around 6.44 to a dollar, a gain of 0.1%.

Also on Asia Times Financial

Asia Stocks

  • Japan’s Nikkei 225 index tumbled 1.89%
  • Australia’s S&P ASX 200 dipped 0.64% 
  • Hong Kong’s Hang Seng index retreated 0.94%
  • China’s CSI300 slipped 0.47%
  • The MSCI Asia Pacific index dropped 1.59%.

Stock of the Day

Evergrande Property Services recently spun-off from developer Evergrande Group rose as much as 12.9% after it announced a series of acquisitions which would “further consolidate the benefit of scale in property management”

Umesh Desai

Umesh Desai is the Executive Editor at Asia Financial. Prior to this he spent over two decades with Reuters News as Asia Pacific Chief Correspondent in Hong Kong and Bureau Chief in Bombay. Before becoming a journalist Umesh was a credit ratings analyst with Moody's arm in India - ICRA. A chartered accountant by training, Umesh began his career as an equity analyst. His Twitter handle is @umesh_desai

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