Asian stock markets faced significant losses on Thursday as the specter of higher U.S. interest rates dulled the allure of risk-driven assets, with investors now turning their attention to forthcoming central bank rate determinations across the region.
Technology stocks bore the brunt of the downturn, mirroring the overnight declines witnessed by their counterparts in the United States. This followed the Federal Reserve’s decision to keep interest rates unchanged, but it cautioned that stubborn inflation could warrant at least one more rate hike within the year.
Additionally, the central bank signaled that interest rates in 2024 would probably decrease by a smaller margin than initially anticipated. The possibility of heightened U.S. rates does not bode well for Asian markets, as it tightens monetary conditions and curtails foreign capital inflows into the region—a trend that has weighed on Asian markets for the past year.
Stock exchanges with heavy tech exposures, such as South Korea’s KOSPI, Hong Kong’s Hang Seng, and Japan’s Nikkei 225, bore the brunt of the losses, recording declines ranging from 0.7% to 1.3%.
The repercussions of the Fed’s comments reverberated through broader financial markets as Australia’s ASX 200 declined by 0.8%, in sync with falling commodity prices.
Futures for India’s Nifty 50 index hinted at a negative opening, as the index retreated from record highs in the preceding session. India’s sentiment was also somewhat shaken by an escalating diplomatic dispute with Canada concerning the alleged assassination of a Sikh separatist leader.
Chinese equities, however, registered milder losses, with the Shanghai Shenzhen CSI 300 and Shanghai Composite indices dipping by approximately 0.3% and 0.1%, respectively. They fared better than their regional counterparts.
The People’s Bank of China adhered to its record-low loan prime rates as expected on Wednesday. Nevertheless, the bank indicated its readiness to infuse further monetary stimulus into the economy as it grapples with a slowing post-COVID economic recovery.
Growing concerns over an economic deceleration led Chinese stocks to a ten-month low in recent sessions, as investors also grew impatient with Beijing’s relatively conservative stance on additional stimulus measures.
Japanese stocks, too, saw losses ahead of an impending Bank of Japan meeting on Friday, during which the central bank is widely expected to provide insights into a potential departure from negative interest rates. Governor Kazuo Ueda had recently alluded to such a shift, citing steady wage and inflation growth in recent months.
Before that, the Philippines and Indonesia are set to announce their rate decisions on Thursday. Stocks in both countries saw modest gains, with their respective central banks widely anticipated to maintain interest rates at their current levels.
Later in the day, the Bank of England is scheduled to announce its rate decision, following recent data showing that UK inflation grew slightly less than expected in August.
