Asia stocks hit 2-year low on rate hike, inflation and economy worries; STI down 1.3%

The Nikkei lost 1.9 per cent, Australian shares shed 2.3 per cent and South Korean stocks lost 2 per cent. PHOTO: AFP

SINGAPORE (REUTERS, BLOOMBERG) - Asian shares fell to their lowest in nearly two years on Tuesday (May 10) as investors fretted about the toxic cocktail of rising interest rates, inflation and lower economic growth.

Growing fears of recession and a slowdown in China dragged down commodity-linked currencies and oil prices, though safety flows kept the US dollar near 20-year highs.

MSCI’s broadest index of Asia-Pacific shares ex-Japan tumbled as much as 2.3 per cent to 515.7, sliding for a seventh straight session and extending losses to 18 per cent so far this year. The benchmark later pared losses to trade down 1.3 per cent.

Across Asia, share indexes were a sea of red but traded above the day’s lows in volatile markets. Japan’s Nikkei lost 1.1 per cent, Australian shares shed 1.4 per cent, South Korean stocks lost 0.8 per cent.

Hong Kong’s benchmark share index returned from a one-day holiday sharply lower on Tuesday and slumped more than 4 per cent before paring losses to 2.9 per cent. China’s Shanghai Composite bucked the trend, eking out a 0.2 per cent gain.

Singapore’s Straits Times Index was down 1.3 per cent at the midday trading break.

“Chinese growth is facing significant headwinds, whether you look at official or private sector purchasing managers’ index,” said Mr Song Seng Wun, an economist at CIMB Private Banking.

“Softening global growth is the persistent wall of worry for markets as investors look beyond the next three to six months. The view on growth momentum seems to be that revenge spending after the pandemic may be affected by higher borrowing costs,” he said.

Chinese equities are the worst performers among major markets so far this year, recording losses of between 21 per cent and 25 per cent. Singapore and Indonesian stock indexes have, however, ticked up.

Growth worries resurfaced after central banks in the United States, Britain and Australia raised interest rates last week and investors girded for more tightening as policymakers fight soaring inflation.

On Monday, Shanghai and Beijing tightened Covid-19 curbs, which have already taken a heavy toll on the world’s second-largest economy. China’s export growth slowed to its weakest in almost two years, data showed, as the central bank pledged to step up support for the slowing economy.

US stock futures turned positive after declining earlier. S&P 500 stock futures rose 0.4 per cent, Dow Jones futures ticked up 0.3 per cent and Nasdaq futures gained 0.7 per cent.

Overnight, US stocks extended Friday’s bruising sell-off, closing at 13-month lows, as investors rushed to protect themselves against the prospect of a weakening economy. The tech-heavy Nasdaq has shed about US$1.5 trillion (S$2.1 trillion) in market value after three days of heavy selling.

“The idea of a benign and gentle tightening cycle has evaporated,” ANZ analysts said in a report.

“The reality is that the Fed cannot control the supply side of the economy in the short run, so as long as key indicators like the labour force participation rate stay low and Chinese exports slow, the risk to inflation, and therefore interest rates, lies to the upside,” ANZ said.

Oil prices ticked lower on demand worries as coronavirus lockdowns in China, the top oil importer, continued.

Brent crude fell 1 per cent to US$104.75 a barrel and US West Texas Intermediate crude declined 1.1 per cent to US$101.96 a barrel, adding to a 6 per cent slump in the previous session. Both contracts are still up about 35 per cent so far this year.

Commodity-linked currencies including the Australian and Canadian dollars took a beating as oil prices fell. The Australian dollar dropped as low as US$0.6920, its weakest since July 2020, having fallen 1.7 per cent overnight. 

The dollar index was steady at 103.6, having risen as high as 104.19 overnight, a fresh 20-year peak.

US Treasury yields, which have climbed sharply on expectations of aggressive tightening by the Federal Reserve, took a breather after Atlanta Fed president Raphael Bostic pushed back on suggestions of a massive 75-basis point rate hike at the Fed’s next meeting.

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