Hong Kong's world-beating stock market rally cooled Wednesday with the main index down its most in eight months. Top issues such as Tencent Holdings and Hong Kong Exchanges & Clearing were sold on concerns January buying to date has been excessive. The change of heart eroded $189 billion in market value.
On Tuesday Tencent shares rose 10.9% to HK$766.50 ($98.88). The WeChat operator sprinted to a 35.9% gain this month and took its capitalization to $948.7 billion. It surpassed electric carmaker Tesla in value Jan. 15 and was within 5.5% Tuesday of breaking into the five-member $1 trillion market-capitalization companies, according to Bloomberg data.
However, late trading Tuesday saw the Hang Seng Index down 2.6% to 29,391.26 points at the close - the biggest slide since a 5.6% fall May 22. China's Shanghai Composite Index also fell, shedding 1.5% from a December 2015 high after the central bank unexpectedly drained liquidity from the financial system amid caution about stock bubbles.
So, back to Wednesday: Equites in most of Asia slipped as market participants looked to the Federal Reserve's guidance on its monetary policy while futures for U.S. technology shares jumped after strong earnings from Microsoft.
MSCI's gauge of Asian ex-Japan shares slipped 0.3% - down on selling in shares that had made recent price gains and as some market participants grew wary of stretched valuations.
Nevertheless, Japan's Nikkei rose 0.2% and the region's technology-heavy markets, such as South Korea and Taiwan, witnessed small gains, helped by 0.5% rises in Nasdaq futures after Microsoft's brisk quarterly results.
Microsoft shares rose 4% in extended trading after its Azure cloud computing services grew more 50%.
"Microsoft's earnings were superb, even compared with strong market expectations," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"Those tech firm shares have been in a bit of the doldrums since August but they are likely to lead the market again, given their solid outlook," he said.
At their peak in August, the combined market capitalization of the top five biggest U.S. tech companies, which also include Amazon and Alphabet, reached 24.6% of the U.S. blue chip S&P500 index. It stood at 22.7%, still well above 15% two years ago.
S&P500 futures were mostly flat, capped by caution ahead of Federal Reserve's policy meeting as well as selling of cyclical shares after stellar gains this month.
The S&P500 is now trading at 22.7 times its expected earnings, near its September peak of 23.1 times, which was its most inflated level since the dotcom bubble in 2000.
The U.S. Federal Reserve is due to announce results of its two-day policy meeting Wednesday. Analysts expect Federal Reserve to stick to its dovish tone to help speed the economic recovery.
U.S. stimulus talks are also in focus with U.S. Senate Majority Leader Chuck Schumer saying Democrats will move forward on President Joe Biden's $1.9 trillion coronavirus relief plan without Republican support if necessary.
Benchmark 10-year notes were yielding 1.040%, having hit a three-week low of 1.028% Tuesday on rising speculation Biden may have to scale back and possibly delay his ambitious stimulus plan.
The U.S. dollar was little moved as market participants awaited Federal Reserve's decision for clues on whether they should buy riskier currencies.
The dollar index flirted with this week's low at 90.211, while the euro held firm at $1.2162.
Sterling rose 0.1% to $1.3735, its highest level since May 2018 while the yen edged back slightly to 103.71 per dollar after a small gain the previous day.
Australia's dollar was little changed at $0.7744, showing muted response to stronger-than-expected local inflation data.
Oil prices were supported by economic optimism, with U.S. crude futures trading up 0.3% at $52.79 per barrel.
The International Monetary Fund raised its forecast for world growth in 2021, as widely expected, and many market participants expect the world economic recovery from the pandemic-driven downturn to continue.
