By Kenan Machado

Stocks largely down amid fears of 'very major' border tax

Asian shares were lacking direction early Tuesday, as the overnight decision by the U.S. to pull out of a regional trade pact, as well as increased protectionist rhetoric, have largely been priced in by the market.

Australia's S&P/ASX 200 was up 0.4%, while Hong Kong's Hang Seng Index added 0.3%. The Nikkei Stock Average seesawed but was last down 0.1%, and Korea's Kospi fell 0.2%.

On Monday, President Donald Trump officially withdrew his country from the Trans-Pacific Partnership, a 12-nation trade deal that he claimed would have cost the country its jobs. The move fulfills one of his main campaign pledges.

However, of more concern to Asia was Trump's promise to impose a "very major" border tax on companies that move some operations overseas, a move that could also impact imports.

Trump has previously described his "border tax" as a selective 35% tax on companies that outsource production to other countries.

Read:Japan says TPP 'meaningless' without U.S., but still hopes to save pact (http://www.marketwatch.com/story/japan-says-tpp-meaningless-without-us-but-still-hopes-to-save-pact-2017-01-23)

Any protectionist measures or a "border tax" will hurt companies in Asia, said Willie Chan, a regional strategist at Maybank Kim Eng. "It is going to impact the capital expenditure and credit growth cycle in Asia," said Chan.

Trump's comments sent shares of key Asian exporters lower on Tuesday. In Japan, Mitsubishi Motors (7211.TO) was down 1.8%, while Mazda Motor (7261.TO) lost 2.2% and Nissan Motor (NSANY) was off 1.2%. In South Korea, Hyundai Motor (005380.SE) was down 1.7%.

Financial stocks in Japan also fell as investors flocked to buy sovereign bonds to counter volatility, sending prices of such instruments higher with yields trending lower. Yields are inversely related to prices.

Among financial firms, Mitsubishi UFJ (MTU) was down 2.7%, while Dai-ichi Life (8750.TO) lost 3.1%. The Topix sub index for banks dropped 2.4%.

"We believe the president wants a U.S. manufacturing renaissance and views a strong dollar as incompatible with this," said Tim Condon, head of research for Asia at ING.

The U.S. dollar recovered slightly in early Asian trade Tuesday, after declining overnight following the populist tone set by Trump. The greenback's gains have lost steam as few details of Trump's fiscal stimulus plans have been announced, while the president said he would prefer a weaker dollar.

Meanwhile, the Shanghai Composite Index was flat as trading was muted ahead of the week-long Chinese New Year holidays, set to begin on Saturday.

For China, a failure of the TPP "will mean that those countries will come closer to China," said Maybank Kim Eng's Chan.

To be sure, China is seeking to fill in the potential gap left by the U.S. "If it's necessary for China to play the role of leader, then China must take on this responsibility," said Zhang Jun, head of the Chinese foreign ministry's office of international economic affairs, on Monday.

(END) Dow Jones Newswires

January 23, 2017 22:47 ET (03:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.