Markets in Asia retreated somewhat yesterday on renewed tensions between North Korea and the United States - though China's debt position also worried investors.
US President Donald Trump ordered new sanctions against the rogue state on Thursday, and North Korea said yesterday it might look at a Pacific Ocean hydrogen bomb test.
Another factor: A move by the US Federal Reserve on Thursday to unwind some of the vast sums of government debt it has held since moving to kick-start the US economy after the global financial crisis.
Seoul was among the heaviest hit of Asian bourses, dropping 0.74 per cent, while Tokyo lost 0.25 per cent. Singapore put on 0.2 per cent.
Investors also weighed the downgrade of China's sovereign credit rating by Standard & Poor's (S&P), which likely helped send Shanghai sliding 0.16 per cent.
Hong Kong shed 0.82 per cent after the agency also cut its rating, citing risks posed to the special territory from the spillover effects from mainland China.
China's yuan weakened about 0.45 per cent to the US dollar, while the Singdollar put on 0.18 per cent.
On Thursday, S&P cut China's sovereign credit rating for the first time since 1999, pointing to economic and financial risks from the country's soaring debt. The S&P rating is now at the same level as the rating by Fitch and Moody’s.
The move could be prickly for the ruling Communist Party, ahead of a national congress next month. President Xi Jinping is set to be named to a second five-year term as leader.
"It is bad optics for China, especially when they are out there from a policy and rhetorical standpoint talking about debt more and acknowledging their debt challenge," Mr Andrew Polk, co-founder of research firm Trivium China in Beijing, told Bloomberg.
Still, Nomura chief economist and head of global markets research Robert Subbaraman does not expect S&P's move to have a huge impact on markets in China.
"If anything, it is a continued sign that China does have some parts of its economy that are structurally weak at the moment and need to be fixed," he told The Straits Times.
In response to the downgrade, China's Finance Ministry said S&P made a "wrong decision" to cut the country's sovereign credit rating. On its website yesterday, it called the decision "perplexing" as it came while economic growth was on a firmer footing as China continues to push supply-side structural reform, according to Xinhua news agency.
The ministry said it was a pity for S&P to focus on China's fast credit growth and debt issues, but ignore its distinctive financing structure. "The downgrade is a result of the international rating agencies' long-standing mode of thinking, and misreading of the Chinese economy based on developed countries' experiences," it said.
Correction Note: An earlier version of this story said that Fitch and Moody's lowered their ratings for China earlier this year. This is incorrect. We are sorry for the error.