Asia’s major stock indexes were rattled on Wednesday with investors worried by the downgrade of US sovereign debt, while doubts over China’s promises of support for its struggling recovery weighed too.
Traders were unnerved after Fitch cut the US debt rating by one notch from its AAA level, pointing to a growing federal debt burden and an “erosion of governance” after the long-running row between Republicans and Democrats over raising the US borrowing ceiling, which sparked fears of a devastating default by the world’s top economy.
Asian markets then followed Wall Street lower with weak economic data and concerns about over-heated valuations also playing their part.
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Japanese shares slid to their biggest one-day percentage drop this year, as caution prevailed after the surprise US credit rating cut.
Japan’s benchmark Nikkei average closed down 2.30% at 32,707.69 in its sharpest one-day drop since December 20, while the broader Topix slipped 1.52% to 2,301.76.
Chip-making equipment maker Tokyo Electron slipped 3.12% and chip-testing equipment maker Advantest lost 4.48% while shares of Nomura Holdings tanked 8%, its biggest one-day drop since March 2021, even as the nation’s top brokerage reported a jump in first-quarter net profit.
China and Hong Kong stocks slipped after a recent rally spurred by stimulus hopes, as some investors went profit-taking in the absence of concrete and forceful measures by Beijing to shore up a flagging economy.
China and Hong Kong stocks had rebounded sharply since the July 24 Politburo meeting, where top Chinese leaders pledged to step up policy support for the economy amid a tortuous post-Covid recovery.
But the rally appears to be losing some steam as measures announced so far to boost consumption, revive capital markets, and aid the struggling property sector have been seen as being either vague or too mild.
The Shanghai Composite Index fell 0.89%, or 29.26 points, to 3,261.69, while the Shenzhen Composite Index on China’s second exchange retreated 0.28%, or 5.70 points, to 2,056.06.
The Hang Seng Index, which had surged since the Politburo meeting, dropped 2.47%, or 493.74 points, to 19,517.38.
Elsewhere across the region, Singapore, Seoul, Sydney, Mumbai, Taipei, Manila and Jakarta were all in the red.
MSCI’s broadest index of Asia-Pacific shares outside Japan shed 2.15%, on course for its worst day since February.
US Jobless Claims Data Due
Fitch cut the United States by one notch to AA+ from AAA, citing fiscal deterioration, a decision announced after the Wall Street close on Tuesday.
US 10-year Treasury yields declined by about 2 basis points to 4.025% in Tokyo.
“Most of the Asia turmoil and the Treasury yields move is triggered by the Fitch decision,” said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas. “It’s kind of a short-term knee-jerk reaction, so we will have to wait and watch for how this pans out.”
The US dollar moved lower against a basket of major currencies immediately after the announcement, but was up 0.1% as of the Asian morning.
While the investor reaction to the downgrade was relatively contained, it has injected some uncertainty into financial markets.
“This basically tells you is the US government’s spending is a problem. It’s an unsustainable budget situation because the economy can’t even grow its way out of this problem going forward,” said Steven Ricchiuto, US chief economist, Mizuho Securities.
Looking beyond the Fitch downgrade, the main area of focus will still be central banks, corporate earnings and, in China specifically, stimulus prospects the geopolitical issues, he said.
The United States publishes fresh data on jobless claims and unemployment later this week.
Oil prices gained on Wednesday, trading near their highest since April, after industry data showed a much steeper-than-expected draw last week in US crude oil inventories.
West Texas Intermediate crude futures ticked up 1% to $82.18 while Brent crude rose to $85.73 per barrel. Gold was slightly higher, trading at $1,949.69 per ounce.
Key figures
Tokyo – Nikkei 225 < DOWN 2.30% at 32,707.69 (close)
Hong Kong – Hang Seng Index < DOWN 2.47% at 19,517.38 (close)
Shanghai – Composite < DOWN 0.89% at 3,261.69 (close)
London – FTSE 100 < DOWN 1.83% at 7,525.83 (0939 GMT)
New York – Dow > UP 0.20% at 35,630.68 (Tuesday close)
- Reuters with additional editing by Sean O’Meara
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