(Bloomberg) — Asian stocks pulled back after a five-day rally that pushed a regional gauge into overbought territory, as investors turned cautious amid increasing trade tensions and geopolitical uncertainty. Hong Kong technology stocks were an outlier.
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The MSCI Asia Pacific Index dropped as much as 0.6% with stocks in Hong Kong and Japan declining after President Donald Trump threatened to more impose tariffs of around 25%. Semiconductor shares advanced in China while equity index futures for Europe pointed to a lower open.
While investors remain cautious on the tariff front and talks to end the war in Ukraine, much of the focus in Asia is on whether a $1 trillion rally in Chinese stocks will be sustained. Advances in artificial intelligence by DeepSeek and President Xi Jinping’s meeting with tech companies, including Alibaba Group co-founder Jack Ma, have encouraged investors.
“There’s good reason to be bullish on Chinese and Hong Kong stocks, especially given signals from the central government of a more pro-tech industry and private enterprise stance,” said Kyle Rodda, a senior analyst at Capital.com in Melbourne. “The question is whether the ‘Jack’s Back’ trade still has momentum, or whether the market is due a pull back.”
Chinese mainland investors bought HK$22.4 billion ($2.9 billion) of the city’s stocks on Tuesday. The inflow Tuesday from mainland China to Hong Kong was the biggest daily purchase since early 2021 and the fourth largest on record, according to Bloomberg-compiled data going back to late 2016, when trading links with the financial hub began.
“Against the positive short-term impact in China, there is still medium-term uncertainty around Trump tariff threats and interest rates path,” said Kieran Calder, head of Asia equity research at Union Bancaire Privee in Singapore.
Shares in Baidu Inc. declined as much as 7.3% in Hong Kong after the company announced a drop in revenue. The weakness in internet companies came after Baidu’s forecast raised concerns about capital expenditure, said Ken Wong, an Asian equity portfolio specialist at Eastspring Investments.
Investors are concerned “that Chinese internet companies are not seeing the growth prospects this year and hence not raising CAPEX,” he said.
In corporate news, HSBC Holdings Plc said it expects $1.8 billion in costs over the next two years as it embarks on a global restructuring program that has seen the lender shutter some of its businesses and slash management ranks. National Australia Bank Ltd.’s shares slid as much as 8.6% after first quarter earnings declined.