Bear markets, corrections highlight Asia’s stock pain from hawkish Fed
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The Federal Reserve indicated it is likely to raise US interest rates in March and reaffirmed plans to end its bond purchases.
PHOTO: REUTERS
SEOUL (BLOOMBERG, REUTERS) - Weeks of fretting over the Federal Reserve’s plan to combat inflation with higher interest rates are coming to fruition as Asian stock markets tumble into bear markets and technical corrections.
The MSCI Asia Pacific Index dropped as much as 2.6 per cent on Thursday (Jan 27), pushing it down more than 17 per cent from its recent high, after Fed chairman Jerome Powell signalled a March lift-off for interest rates and potentially faster rate hikes.
South Korea’s tech-heavy Kospi extended its drop since July to 20 per cent, on course to enter a bear market, with investors dumping growth stocks as yields climbed. China’s CSI 300 Index also edged closer to bear territory, when stock prices fall 20 per cent or more from recent highs.
Singapore’s Straits Times Index was down 0.6 per cent at midday local time.
“Investors appear to have become increasingly conscious of the risks that the Fed may end up cooling any economic growth with too much monetary tightening,” said Mr Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo.
The MSCI benchmark is on track for its worst monthly performance since March 2020 as traders continue to position for the Fed’s policy moves. Australian stocks were on track to enter a technical correction, down 10 per cent from their recent high, following drops to that level by Japan’s Topix and New Zealand’s main equity gauge earlier this week.
Speaking after the Federal Open Market Committee (FOMC) meeting on Wednesday, Mr Powell said the US central bank was ready to raise interest rates in March and did not rule out moving at every meeting to tackle inflation.
“Powell not ruling out raising rates at every FOMC meeting certainly seemed to have surprised the street, with seven more meetings to go for the rest of the year,” said head of execution services Takeo Kamai at CLSA Securities Japan. “The moves in Treasury yields will likely continue to be a headache for growth stocks.”
Mr Powell warned that inflation remains above the Fed’s long-running goal and supply chain issues may be more persistent than previously thought.
“There was a marked shift in terms of a relatively dovish statement and then a relatively hawkish press conference,” said Mr David Chao, global market strategist for Asia-Pacific (ex-Japan) at Invesco.
The US dollar rose on the back of higher yields, lifting the US dollar index, which measures the greenback against major peers, to 96.557.
The yen edged slightly higher to 114.57, while the euro weakened to US$1.1230.
Adding to global investor concerns, the United States said on Wednesday it had set out a diplomatic path to address sweeping Russian demands in eastern Europe, as Moscow held security talks with Western countries and intensified its military build-up near Ukraine with new drills.
Adding to global investor concerns, the United States said on Wednesday it had set out a diplomatic path to address sweeping Russian demands in eastern Europe, as Moscow held security talks with Western countries and intensified its military build-up near Ukraine with new drills.
Worries over tensions between Russia and Ukraine had lifted crude prices above US$90 per barrel a day earlier, a level last seen in October 2014.
On Thursday, global benchmark Brent crude eased 0.2 per cent but remained just below US$90 per barrel at US$89.75. US West Texas Intermediate crude was down 0.2 per cent at US$87.18 per barrel.
US officials say they are in talks with major energy-producing countries and companies worldwide over a potential diversion of supplies to Europe if Russia invades Ukraine, although the White House has said it faces challenges finding alternative sources of energy supplies.
Spot gold slipped 0.1 per cent to US$1,816.42 an ounce on the firmer dollar.
Worries over tensions between Russia and Ukraine had lifted crude prices above US$90 per barrel a day earlier, a level last seen in October 2014.
On Thursday, global benchmark Brent crude eased 0.2 per cent but remained just below US$90 per barrel at US$89.75. US West Texas Intermediate crude was down 0.2 per cent at US$87.18 per barrel.
US officials say they are in talks with major energy-producing countries and companies worldwide over a potential diversion of supplies to Europe if Russia invades Ukraine, although the White House has said it faces challenges finding alternative sources of energy supplies.
Spot gold slipped 0.1 per cent to US$1,816.42 an ounce on the firmer dollar.