China's crackdown on the private education and tech sectors has raised concerns that it is planning to target other industries

Hong Kong (AFP) - Equities fell in Asia on Friday, setting them up to end a volatile week on a negative note as China’s regulatory crackdown continued to spook investors.

The losses came despite a positive lead from Wall Street, where traders were cheered by data showing the US economy returned to its pre-pandemic size in the second quarter but fell short of forecasts, which eased pressure on the Federal Reserve to begin tapering its ultra-loose monetary policies.

While the corporate earnings season has beaten expectations and economic data suggests the global recovery is still on track – despite spiking Delta Covid variant cases – Asian markets have been clobbered this week by China’s sweeping moves against the private tuition, tech and property sectors.

The measures, which include banning education firms from making a profit and forcing Tencent to give up its exclusive music rights, have fuelled concerns that others might be in Beijing’s crosshairs.

Hong Kong lost more than nine percent in three days in reaction to the announcements, while Shanghai took a hit and other markets globally were also rattled.

Chinese state media and regulators looked to soothe investor fears by saying officials were not preparing a wide-ranging crackdown on a range of industries and that economic fundamentals were healthy, which provided a springboard for Asia on Thursday.

But trading floors remained nervous, and analysts warned Beijing might not be finished just yet. Tencent, ecommerce giant Alibaba and food delivery firm Meituan – which had also faced Beijing’s ire – and tutorial firms were all solidly lower again in Hong Kong.

“When it comes to China, if you can align your investment strategy with what the government wants, I think generally you are going to do pretty well in that situation,” Chris Weston, of Pepperstone Financial Pty, told Bloomberg Television.

Hong Kong, Shanghai, Tokyo, Sydney, Seoul, Wellington, Taipei, Jakarta and Manila were all in negative territory, though Singapore and Mumbai rose.

London and Frankfurt both lost more than one percent while Paris was also lower.

“It’s the fear of the unknown,” Justin Tang, at United First Partners, said. “Market sentiment is on thin ice. Investors probably expected more meat, however they only got bones in respect to details of the Chinese government’s exhortation to calm down.”

Investors were unable to take up the baton from New York, where the three main indexes closed within a whisker of record highs.

“All in all, it looks like investors are taking risks off the table over the weekend,” said OANDA’s Jeffrey Halley. “With sentiment remaining fragile, despite some stabilisation yesterday, the fast-money herds don’t need much to spook them.”

Outside of China’s crackdown, the outlook remains positive.

On Thursday, figures showed the US economy expanded 6.5 percent in April-June, making it bigger than before the pandemic.

While the reading was well short of expectations, it was crucially supported by strong consumer spending as people returned to a semblance of normality thanks to vaccine rollouts and businesses reopening.

Meanwhile, jobless claims fell again but not by as much as hoped.

Analysts said the data provided optimism that the recovery remained on track but not at a blistering pace that would force the Fed to consider winding down the accommodative policy stance that has been a key support for an equities rally that has lasted more than a year.

“While the (growth) print missed expectations, a healthier US consumer that seemingly can’t get enough was the bright spot and carried the day,” said National Australia Bank’s Rodrigo Catril.

“Equities liked the US consumer spending voracity while sentiment has also been helped by the perception the Fed is no rush to taper.”

He said a symposium of central bankers and financial heads at Jackson Hole, Wyoming, next month would be closely followed for any clues about the Fed’s next move.

The bank said Wednesday that it was not considering changing policy any time soon as the economy was not yet ready to stand on its own.

However, Catril said a taper announcement was unlikely at Jackson Hole or the next policy meeting on September 22 as the Fed had said it wanted to assess more data at upcoming meetings, suggesting there would be several gatherings before a decision is made.

“An early 2022 actual taper, though, is still seen as the consensus view,” he added.

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: DOWN 1.8 percent at 27,283.59 (close)

Hong Kong - Hang Seng Index: DOWN 1.4 percent at 25,961.03 (close)

Shanghai - Composite: DOWN 0.4 percent at 3,397.36 (close)

London - FTSE 100: DOWN 1.1 percent at 6,999.80

Dollar/yen: UP at 109.54 yen from 109.48 yen at 2100 GMT

Pound/dollar: DOWN at $1.3959 from $1.3960

Euro/dollar: UP at $1.1894 from $1.1889

Euro/pound: UP at 85.21 pence from 85.13 pence

West Texas Intermediate: DOWN 0.5 percent at $73.23 per barrel

Brent North Sea crude: DOWN 0.6 percent at $75.61 per barrel

New York - Dow: UP 0.4 percent at 35,084.53 (close)