Asia close: Spike lower in Chinese equity futures rekindles worries

The main Asian equity benchmarks put in solid gains despite a sharp spike lower in futures linked to China´s CSI 300 index at one point in the session that drew comparisons with the volatility seen in August and set off 'market chatter' about the risk of renewed weakness in the yuan.

At one point during Tuesday´s session, Chinese CSI 300 futures fell limit-down, plunging by 10%, amid poor liquidity and talk of possible hedging activity by investors wary that further weakness might lie ahead for the country´s stocks.

Overnight, China´s central bank set the daily fixing for the country´s currency 0.01% weaker at 6.579, culminating a 1.6% drop for the month against the US dollar, the largest one-month fall since August 2015.

However, in the previous session the People´s Bank of China set the daily fixing 0.45% weaker at 6.5784 versus the greenback - its lowest level in over five years.

That followed somewhat 'hawkish' remarks from US central bank chief Janet Yellen on 27 May. Linked to the above, Bloomberg reported that 'short interest' in one of the biggest Hong Kong exchange traded funds had jumped by a factor of five, reaching its highest level in a year.

The worst performing currency in May was South Korea´s won, which retreated 4.4% against the US dollar, followed by India´s Rupee which lost 1.6%, according to Bloomberg data. As of 13:14 BST, the US dollar spot index was just 0.02% higher to 95.54.

Nonetheless, on Tuesday at least the Shanghai Stock Exchange´s Composite Index gained 3.34% to 2,916.62, alongside some speculation state-backed funds had stepped into the market to help prop up stocks.

Some market commentary also referenced a report from Goldman Sachs pegging the odds of Chinese equities being included in the Morgan Stanley Capital Indices at 70% as a contributing factor behind the rise seen in stocks.

In parallel, the Nikkei-225 finished the session higher by 166.96 points to 17,234.98, following a flurry of better-than-expected economic indicators.

Hong Kong´s Hang Seng rose 0.90% to 20,815.09, South Korea´s Kospi tacked on 0.83% to end at 1,983.40 and Australia´s All Ordinaries slipped 0.54% to 5,378.56.

Industrial production in Japan edged higher by 0.3% month-on-month in April, following a jump of 3.8% in the month before and defying forecasts calling for a drop of 1.5%.

Other data out in Japan revealed that unemployment was steady at 3.2% in April, while real household spending shrank by 0.4% year-on-year (consensus: -1.1%).