(Sharecast News) - Asia-Pacific markets fell on Tuesday as risk sentiment weakened amid renewed US tariff threats linked to talks over Greenland, stoking concerns about a broader escalation in trade tensions with Europe.
As Patrick Munnelly, market strategy partner at TickMill, noted, "global markets faced further turbulence as treasuries joined a widespread bond selloff and equities took a hit, spurred by renewed trade tensions following president Donald Trump's unexpected tariff threats on Greenland," with fragile sentiment leaving investors increasingly risk-averse.
Investors reacted after US president Donald Trump said exports from eight European countries would face tariffs starting at 10% from 1 February, rising to 25% by 1 June if negotiations failed to secure US control of the mineral-rich, semi-autonomous territory under Danish sovereignty.
Munnelly said concerns were mounting over "the Trump administration's confrontational stance toward global counterparts, which could potentially dampen appetite for US assets," adding to pressure across global markets.
Reports that European states were weighing counter-tariffs and other punitive economic measures added to market unease across the region.
Tokyo leads losses as PM signals snap election
Japanese equities led losses as political uncertainty compounded global risk aversion.
The Nikkei 225 fell 1.11% to 52,991.10, with Fuji Electric sliding 7.44%, Recruit Holdings dropping 6.3% and Sumitomo Dainippon Pharma down 5.55%.
The broader Topix declined 0.84% to 3,625.60.
Munnelly said that in Japan "attention turned to the 40-year government bond yield, which surged to 4% - its highest level since the bond's introduction in 2007," while weak demand for a 20-year bond auction signalled waning investor appetite.
Markets were also reacting after prime minister Sanae Takaichi said she would dissolve parliament and call a snap election on 8 February, with Japan's ruling coalition currently holding a one-seat majority.
While the vote raised near-term uncertainty, Fitch Group said it could ultimately deliver greater policy clarity, adding that government debt was expected to remain elevated but gradually ease to the mid-190% range of GDP by 2029 from an estimated 199.5% in 2025, helped by stronger nominal growth.
Mainland in the red as PBoC holds rates
Chinese markets were mixed as investors digested weak economic momentum and steady policy settings.
The Shanghai Composite edged down 0.01% to 4,113.65, with Beijing Piesat Information Technology tumbling 11.22%, Shaanxi Aerospace Power Hi-Tech down 10% and Guosheng Shian Technology also falling 10%.
The Shenzhen Component dropped 0.97% to 14,155.63.
Munnelly said that "on Tuesday, Chinese stocks took a dip as regulators cracked down on speculative activity and unusual trading behaviors," contributing to broader regional softness.
The People's Bank of China kept its one-year and five-year loan prime rates unchanged at 3% and 3.5% for an eighth straight month, opting for targeted support rather than broad easing as growth slowed to 4.5% year-on-year in the final quarter of 2025.
Economists at Barclays noted that nominal GDP growth remained below 4% for a third consecutive year at 3.8%, the weakest level in five decades excluding 2020, while deflation persisted for an 11th quarter.
Retail sales growth slowed to a three-year low of 0.9% in December, underscoring fragile domestic demand, with Nomura warning that Beijing was increasingly concerned about one of the sharpest demand slowdowns this century.
Other markets in the red as well
Elsewhere, Hong Kong's Hang Seng Index slipped 0.29% to 26,487.51, led lower by WuXi AppTec, down 4.13%, BYD, which fell 3.67%, and SMIC, off 3.25%.
Munnelly said "Hong Kong's markets followed suit, edging lower amid broader regional market softness," as risk appetite faded across Asia.
South Korea's Kospi 100 declined 0.89% to 5,428.44, with Hyundai Glovis dropping 4.95%, Mirae Asset Daewoo Securities down 3.91% and Samsung Electro-Mechanics falling 3.42%.
In Australia, the S&P/ASX 200 lost 0.66% to 8,815.90 as ARB Corporation slumped 12.04%, Lynas Rare Earths fell 6.33% and Perenti Global dropped 6.31%.
Munnelly added that "bond markets in Australia and New Zealand followed suit with sharp declines," echoing the global sell-off seen in sovereign debt.
New Zealand's S&P/NZX 50 edged 0.05% lower to 13,573.93, led by declines in Pacific Edge, Eroad and Spark New Zealand.
Dollar weakens as oil prices edge higher
In currency markets, the dollar weakened modestly, last trading down 0.17% on the yen at JPY 157.84, as it slipped 0.23% against the Aussie to AUD 1.4860 and fell 0.64% from the Kiwi to change hands at NZD 1.7134.
Munnelly noted that "the US dollar index dropped to its lowest level in two weeks," reflecting softer demand for the greenback as investors reassessed risk.
Oil prices edged higher, with Brent crude futures last up 0.28% on ICE at $64.12 per barrel, and the NYMEX quote for West Texas Intermediate gaining 0.39% to $59.67.
Reporting by Josh White for Sharecast.com.
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