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Asian stocks drop as Sino-U.S. ties worsen

Asian stocks drop

Chinese stocks were the worst performers for the day, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes dropping 0.8 per cent and 0.7 per cent, respectively

Most Asian stocks pulled back on Tuesday as hope over a deal to raise the U.S. debt ceiling was offset by concerns of worsening ties between Beijing and Washington, amid renewed sparring between the two over trade and political sanctions.

Chinese stocks were the worst performers for the day, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indexes dropping 0.8 per cent and 0.7 per cent, respectively. The blue-chip CSI 300 traded at a five-month low after China declined a request for a meeting between U.S. defense secretary Lloyd Austin and Chinese defense minister Li Shangfu at a forum in Singapore later this week.

The move comes as relations between the two countries are at their worst level in decades.

China recently blocked local sales of U.S. chipmaker Micron Technology Inc, an apparent reaction to strict restrictions on semiconductor sales to specific Chinese entities placed by the U.S. and its allies earlier in 2023.

Deteriorating ties between the two nations also come amid fading hopes over a Chinese economic recovery in 2023, with eyes now primarily on manufacturing and service sector data for May, due on Wednesday.

Chinese stocks have generally unwound all gains made on hopes over a post-COVID reopening, and are now trading negative for the year, after a series of weak data for April.

Losses in Chinese stocks spilled over into Hong Kong’s Hang Seng index, which slipped 0.8 per cent to a six-month low.

Wider Asian markets moved in a flat-to-low range as hopes over raising the U.S. debt ceiling ran out of steam. Even with reduced possibility of a U.S. default, markets continued to be on edge over a potential recession in the country this year, which could hugely restrict capital flows into regional markets.

Australia’s ASX 200 index was flat, while Philippine shares led losses in Southeast Asia with a 0.7 per cent decline.

Some markets, like Japan’s Nikkei 225 and the TOPIX, also saw a measure of profit taking after rushing to 33-year highs on Monday. The two indexes dropped 0.4 per cent and 0.6 per cent, respectively.

South Korea’s KOSPI was the sole outlier, advancing 0.8 per cent in catch-up trade and as leading chipmaking stocks, particularly SK Hynix Inc, benefited from a brighter outlook on demand artificial intelligence development.

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