BEIJING - Most Asian markets sank on Tuesday as further weakness in China's economy fuelled worries about the effects on global growth, overshadowing optimism that the United States is winning its battle against inflation and could avoid a recession.
Regional traders extended Monday's retreat sparked by disappointing second-quarter data out of Beijing that missed forecasts badly and highlighted the tough job officials face in getting the country's post-Covid recovery back on track.
And while there is an expectation that fresh stimulus measures are in the pipeline, analysts warned that leaders were limited in how far they could go.
The figures came after last week's reports showing inflation had flatlined, suggesting China was on the brink of a period of painful deflation, while exports plunged for a second straight month.
"You're gonna see some stimulus coming in, which means that the second quarter may have been more of the low, the third quarter a bit better," Joyce Chang, global head of research at JPMorgan, said on Bloomberg Television.
"But we've taken half a percent off of China's growth and I think that the deflation risks are there."
Hong Kong led losses in early trade Tuesday, shedding more than one percent as it reopened a day after being shut because of a severe storm.
Shanghai, Sydney, Seoul, Singapore, Wellington and Taipei also dropped, though Tokyo, Manila and Jakarta edged higher.
The losses came despite a positive lead from Wall Street.
In a report on China, Alicia Garcia Herrero and Jianwei Xu at Natixis CIB said in a report: "We are conservative about the extent of the policy support down the road. Fiscal policies may not be easily implemented in the current situation, given the already high public debt and the reduced efficiency of these policies."
They said there was a possibility that the central bank would cut interest rates again and lower the amount of cash lenders must keep in reserve, allowing them to provide more loans.
But, they added: "The effectiveness of the monetary policy space may be limited due to the lack of investor confidence. Currently, the market is awaiting further regulatory relaxation on key sectors, such as the real estate sector, which could help bolster investors' confidence."