Asian shares subdued as yields challenge valuations

Asian shares start week muted as high Treasury yields test valuations; U.S. dollar strong amid light trading ahead of holidays.

Asian shares began the week with little movement as high Treasury yields put pressure on elevated Wall Street valuations.

Trading volumes were low with the New Year holiday approaching and limited economic data expected. Important releases include China’s PMI factory surveys on Tuesday and the U.S. ISM survey for December on Friday.

MSCI’s Asia-Pacific index outside Japan declined by 0.2% but remains 16% higher for the year. Japan’s Nikkei decreased by 0.9%, despite a 20% gain for 2024. In contrast, South Korea’s main index struggled, dealing with political uncertainty and registering a 9% loss for the year.

Jeju Air’s shares plummeted to a record low following a plane crash that resulted in 179 fatalities. On a more positive note, Chinese blue chips increased by 0.3%, aided by stimulus measures announced in September.

In European markets, EUROSTOXX 50 futures rose slightly, while FTSE and DAX futures remained stable. In the U.S., S&P 500 and Nasdaq futures slipped by 0.1%.

The S&P 500 and Nasdaq recorded annual increases of 25% and 31%, respectively, raising concerns over valuations considering the current yields on 10-year Treasuries, which are near eight-month highs.

The strong U.S. dollar, bolstered by rising interest rates, remains significant amid fluctuating gold and oil prices, as markets monitor ongoing economic developments.