Asia shares rally on Fed confidence, China tech surge; STI up 1%

HONG KONG (BLOOMBERG) - Asian stocks jumped on Thursday (March 17) as Chinese technology shares soared again and traders digested the Federal Reserve's view that the US economy is strong enough to weather the campaign against high inflation now underway.

The Hang Seng China Enterprises Index closed up 7.5 per cent, with technology and property shares among the top gainers after officials promised to ease a regulatory crackdown and pledged support for companies in the sectors. On Wednesday, the gauge of Chinese firms listed in Hong Kong posted its biggest advance since 2008.

The Hang Seng Tech Index soared 7.8 per cent, after rocketing  more than 20 per cent the day before.

Singapore’s Straits Times Index closed 1 per cent higher with the trio of local banks among the  gainers . The Fed interest rate hike is expected to drive local rates higher, which is likely to boost banks’ loan margins.

Japan’s Nikkei index finished 3.5  per cent higher, South Korea’s Kospi index gained 1.3 per cent and Australia’s S&P/ASX 200 Index rose 1.1 per cent.

Hong Kong’s Hang Seng Index jumped 7 per cent while China’s Shanghai Composite Index rose 1.4 per cent.

Chinese equities are staging a dramatic turnaround after Beijing on Wednesday vowed to keep its stock market stable, ease a regulatory crackdown and support property and technology companies. Market watchers are now debating how sustainable this rebound can be, and whether equities have indeed reached a bottom.

Thursday’s gains come amid a broad rally in global stocks after the Fed on Wednesday raised rates for the first time since 2018 and signaled hikes at all six remaining meetings this year. At the same time in a press conference following the interest-rate decision, Fed chair Jerome Powell assured that the United States economy will not tip into recession.

Mr Powell said the US economy is “very strong” and can handle monetary tightening.

US markets on Wednesday initially shuddered after the quarter-point increase was announced but quickly found their footing as Mr Powell made a point of repeatedly affirming the pace of economic growth. The Fed chief reported scant evidence of a downturn any time soon, saying probability of a recession in the next year is “not particularly elevated”.

The key question for markets remains whether the US central bank can tackle the fastest inflation in four decades without triggering a sharp growth slowdown or even a recession. The commodity shock from Russia’s war in Ukraine is aggravating price pressures and economic risks.

The Fed wants “financial conditions to tighten,” Deutsche Bank’s chief international strategist Alan Ruskin said on Bloomberg Television. “The issue there is, can you soft-land this thing? Historically, when the Fed tightens, you do get some hard landing somewhere.”

Defying their stock-market counterparts, the US bond market isn’t t buying Jerome Powell’s upbeat pronouncements on growth. In fact, in the aftermath of Wednesday’s policy decision, one bond-market indicator of economic hardship is flashing red for the first time since the darkest days of the pandemic.

“The market is pricing in a higher recession risk and you can see that with the inversion between five and 10-year yields,” said Andrzej Skiba, head of US fixed income at RBC Global Asset Management. 

While US economic data point to a robust investment and consumption cycle - and a healthy labour market to boot - a bevy of Wall Street strategists are treading carefully.

Diane Swonk, chief economist at Grant Thornton, predicts the US economy will slow during the second half and is at risk of a recession given the twin blow of Fed tightening and higher oil prices.

To be sure, Mr Powell’s commentary and China’s tech stock surge were not the only things buttressing risk assets. Equities got a further boost from speculation that Russia and Ukraine had moved closer to a compromise in peace talks.