Chinese stocks pared early losses Wednesday as initial concerns wore off from Moody's Investors Service's decision to lower the country's credit rating for the first time since 1989.
Equities fell more than 1% in early trading in both Shanghai and Shenzhen, with the downgrade reminding investors of China's continued growth in outstanding borrowings--especially among companies.
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But the declines soon eased, with the Shenzhen Composite Index moving into positive territory for the day within an hour and the Shanghai Composite recently down 0.6%.
"I don't think [the downgrade] came as a surprise to people invested in China," said Hao Hong, head of research at BoCom International in Hong Kong.
Chinese authorities have started pushing entities to cut debt levels, particularly targeting loans made by nonbank firms with little regulatory oversight. The push has hurt Chinese asset prices.
Nomura equities strategist Wendy Liu noted global fixed-income, currency and commodity investors are more concerned about potential household and government deleveraging than equity investors. Even so, there were muted movements in other asset classes as well.
Hong Kong stocks also lagged Wednesday. The Hang Seng fell 0.2% at midday and the H-shares index, made up of Chinese-based companies listed in Hong Kong, was off 0.4%.
The downgrade also came about a month before MSCI Inc. announces whether to include Chinese-listed stocks into its indexes. Finally getting a yes on that could send equities there jumping as money enters the market from the likes of large index-tracking funds.
The ratings cut has raised some concern Chinese firms may face higher overseas borrowing costs, forcing them to raise more financing at home and squeeze market liquidity.
Elsewhere in Asia, shares were mostly higher.
An overnight rebound in the dollar versus the yen helped send Japan's Nikkei Stock Average up 0.5%. Meanwhile, Korea's Kospi nearly set a fresh record intraday high before pulling back. It was recently up 0.1%.
Other stock benchmarks notching gains included Taiwan's Taiex, up 0.4%, and India's Sensex , up 0.4%.
Australian stocks traded in a tight range all session and were down 0.04% in afternoon action. Equities there sold off briefly in the morning following the China downgrade, but the impact has largely been confined to the Australian dollar , which fell some 0.5% against major currencies in Asian trading.
China is the largest market for Australian exports, but near-term worries are unwarranted, said Greg McKenna, chief market strategist at AxiTrader. "China has got control of its capital account," he said, noting that the level of the country's economic growth is more important to Australia than its credit rating.
(END) Dow Jones Newswires
May 24, 2017 01:27 ET (05:27 GMT)