People walk past an electronic board showing Japan's Nikkei average, top right, and the yen's exchange rate against the dollar outside a brokerage in Tokyo, Japan. Picture: REUTERS/TORU HANAI
People walk past an electronic board showing Japan's Nikkei average, top right, and the yen's exchange rate against the dollar outside a brokerage in Tokyo, Japan. Picture: REUTERS/TORU HANAI

Tokyo — Asian shares stepped back on Tuesday, weighed by US growth concerns and as China cut its economic expansion target amid growing challenges from rising debt and a dispute over trade and technology with the US.

Beijing lowered the growth target for this year to 6% to 6.5%, as expected, from about 6.5% in 2018 and offered more stimulus, including cuts in taxes and social security fees, increases in infrastructure investment and lending to small firms.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.5%. Hong Kong’s Hang Seng was down 0.6% and Japan’s Nikkei lost 0.6%.

While Asian shares were broadly weaker, China’s spending plans gave mainland markets some support with the blue-chip CSI300 index briefly gaining as much as 0.5% from Monday’s nine-month high in early trade. It later gave up these gains and fell 0.1%.

“As further details of the economic package will be rolled out in coming days, Chinese share markets could extend gains further near-term,” said Wang Shenshen, strategist at Tokai Tokyo Research Centre.

Reflecting lower tax revenue and higher government spending, Beijing has set a budget deficit target of 2.8% of GDP, up from 2.6% in 2018.

The finance ministry set the quota for local government’s special bond issues at 2.15-trillion yuan ($320bn), 0.8-trillion yuan above the quota for 2018.

“The increase in local governments’ special bond is fairly large,” said Naoto Saito, chief researcher at Daiwa Institute of Research.

“Since those funds will be solely used for infrastructure investments, you cannot avoid the impression that the government is relying on investments to support the economy in the short-term rather than de-leveraging. This could cause problems in the longer term.”

Back to October

Wall Street’s major indices fell on Monday, with the Dow Jones Industrial Average shedding 0.79% and the S&P 500 losing 0.39%.

An unexpected fall in US construction spending, data that normally attracts little attention, was cited as a factor.

But others saw the retreat as a long overdue correction after a rally since late in 2018.

MSCI’s ACWI, a gauge of 47 markets in the world, has risen 16% from its near two-year low set on December 26 low, even as the earnings outlook stagnated, driven by hopes of a dovish Federal Reserve and a compromise between Beijing and Washington on trade.

The index is now trading at 14.6 times expected earnings, on par with levels last seen in early October, when a bear market began globally.

Thus a media report on Monday that US President Donald Trump and Chinese President Xi Jinping could reach a formal trade deal at a summit around March 27 prompted profit-taking rather than follow-through buying.

“If you’re a trader, you’re taking profit now. You buy on the rumour, sell on the news, wait till it goes down, and buy again,” said Sean Taylor, chief investment officer for the Asia-Pacific at Deutsche Bank’s asset management arm DWS.

The 10-year US treasuries yield dropped to 2.724% after touching from six-week highs of 2.768% in the past two sessions.

In currency markets, the dollar held an upper hand against many of its rivals as other major central banks are seen tilting to a more dovish stance than the Federal Reserve.

The euro fetched $1.1333, having dropped 0.25% on Monday, amid expectations the European Central Bank (ECB) is preparing to give banks more cheap, long-term funding at its policy meeting on Thursday.

The dollar traded at ¥111.88, near a 10-week high of ¥112.08 on Friday.

The Australian dollar dipped 0.25% to $0.7072 after weak net exports reading suggested Australia’s economy came close to stalling last quarter.

The news comes as the Reserve Bank of Australia (RBA) holds its March policy meeting amid rising speculation it might have to bite the bullet and cut interest rates in coming months.

Gold has fallen for four days in a row by Monday to as low as $1,283.10/oz, its lowest level since January 25. It last stood at $1,286.6. Silver hit two-month lows of $15.0725/oz.

Oil prices were little changed, hovering below their recently hit three-month peaks.

US crude futures stood at $56.41 a barrel, down 0.3% in early Asia but still up 1% on the week.

International benchmark Brent futures were down 0.2% at $65.55 a barrel.