Asian stocks suffered on Thursday with tech firms leading the losses after the US Federal Reserve signalled it was ready to act on soaring inflation and hike interest rates.
Tech firms led the losses and Tokyo fell almost 3%, while Sydney was off almost as much. Hong Kong was the only market to advance enjoying a late bargain-buying rally after spending much of the day in the red.
The much-anticipated release of minutes from the US central bank’s December policy meeting showed that while officials were concerned about the fast-spreading Omicron coronavirus variant, they were confident the world’s top economy was in rude health and able to absorb high borrowing costs.
The Federal Open Market Committee has already started winding back the vast bond-buying stimulus put in place at the start of the pandemic as price rises remain stubbornly high, with the programme due to end in March. Traders had widely expected the bank to then start lifting rates.
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Policymakers had said they would not remove their support until the Fed was happy it had unemployment tamed and inflation was running persistently hot. Both appear to have been achieved or close to it.
Now officials are ready to act, with the Fed minutes saying: “It may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.”
The move away from massive central bank support around the world, particularly from the Fed, has rattled markets in recent months – having notched up a series of records or multi-year highs on the cheap cash.
With the punch bowl being taken away, traders are in retreat, particularly those invested in tech firms, which are more susceptible to higher interest rates owing to their reliance on borrowing to fuel growth.
On Wall Street, the Nasdaq plunged more than 3%, while the Dow and S&P 500, which both started the week with new records, lost more than 1%.
Tokyo Tech Firms Hit
And Asia tracked the selling with Tokyo and Sydney hit hard, and Seoul, Wellington, Bangkok and Mumbai also giving up more than 1% each. Shanghai, Taipei, Manila and Jakarta were also down.
Tech firms were among the worst-hit. In Japan, Sony dived 6.9% and Tokyo Electron more than 3%, while Kakao Corp fell 5.2% in Seoul.
The benchmark Nikkei 225 index gave up 2.88%, or 844.29 points, at 28,487.87, while the broader Topix index lost 2.07%, or 42.26 points, to 1,997.01.
London, Paris and Frankfurt all fell more than 1% at the open. However, Hong Kong rallied in late trade to end up, with many of its tech firms enjoying some much-needed bargain-buying, though worries over Beijing’s crackdown on the sector continued to haunt traders.
The Hang Seng Index climbed 0.72%, or 165.61 points, to 23,072.86. The Shanghai Composite Index dipped 0.25%, or 9.10 points, to 3,586.08, and the Shenzhen Composite Index on China’s second exchange eased 0.10%, or 2.36 points, to 2,481.33.
Three Fed Hikes Forecast
“The Fed is going to be raising rates this year, perhaps more aggressively than many thought,” said Mark Freeman, of Socorro Asset Management.
“In many of these tech names, there is little support from the long-only community so it doesn’t take much selling pressure to push the names sharply lower, which in turn forces more selling by the hedge funds.”
But other analysts said they still expected the bank to take a measured approach to tightening, with Bank of Singapore’s Mansoor Mohi-uddin forecasting three hikes between June and the end of the year.
The prospect of higher rates also weighed on other assets. Oil retreated, with concerns about virus lockdowns in China also weighing on demand optimism.
Bitcoin dropped to $42,506 at one point, its weakest level since a flash crash at the start of December, and well down from the record near $69,000 seen in November.
Key figures around 0820 GMT
Tokyo > Nikkei 225: DOWN 2.9% at 28,487.87 (close)
Hong Kong > Hang Seng Index: UP 0.7% at 23,072.86 (close)
Shanghai > Composite: DOWN 0.3% at 3,586.08 (close)
London > FTSE 100: DOWN 1.2% at 7,426.38
New York > DOW: DOWN 1.1% at 36,407.11 (close)
- AFP with additional editing by Sean O’Meara
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