Asian stocks slump after Fed signals rates rise

Asian stock markets tumbled by unusually wide margins on Thursday after the Federal Reserve indicated that it plans to start raising interest rates soon to cool inflation.

Tokyo’s market benchmark fell more than three per cent. Hong Kong and Seoul lost more than two per cent.

Wall Street’s benchmark S&P 500 index lost 0.1 per cent on Wednesday after a Fed statement said the US central bank “expects it will soon be appropriate” to raise rates. Investors expect as many as four rate hikes this year, starting in March. The Fed said monthly bond purchases that push down long-term rates, by injecting money into the financial system, would be phased out in March.

“The Fed’s decision will reverberate globally, meaning that the era of low interest rate, ultra-low interest rate is over. All the central banks will start to fight inflation instead of trying to stimulate the economy,” said Francis Lun, CEO of Geo Securities in Hong Kong.

The Nikkei 225 in Tokyo fell 3.2 per cent to 26,152.12 points, and the Hang Seng in Hong Kong retreated 2.6 per cent to 23,664.80.

The Kospi in Seoul sank 2.9 per cent to 2,630.78, despite a stunning market debut for battery maker LG Energy Solutions, whose shares started trading at nearly twice their offer price after an initial public offering that drew the equivalent of US$13 trillion in bids.

LG Energy Solutions’ shares initially fell but then recovered, gaining 3.3 per cent. The company drew massive interest due to expectations of huge growth in the market for electric vehicles. Its market capitalisation of 105.3 trillion won (or US$87.62 billion) ranks it second in South Korea only to Samsung Electronics Co.

Samsung’s shares fell 2.1 per cent on Thursday after it reported that its operating profit for the last quarter rose by more than 53 per cent from the same period last year, as it thrived during the pandemic while relying on its dual strength in parts and finished products.

The Shanghai Composite Index declined 0.9 per cent to 3,425.28, and Sydney’s S&P-ASX 200 shed two per cxent to 6,822.10.

India’s Sensex opened down 1.8 per cent at 56,809.30. New Zealand and Southeast Asian markets also declined.

On Wall Street, the S&P 500 slipped to 4,349.93 after being up 2.2 per cent ahead of the Fed announcement.

The Dow Jones Industrial Average fell 0.4 per cent to 34,168.09. The Nasdaq composite was little changed at 13,542.12, shedding a 3.4 per cent gain earlier in the day.

Wall Street rose immediately after the Fed statement, but major indices gave up their gains as Fed Chair Jerome Powell took questions about how and when the central bank will let its balance sheet shrink after buying trillions of dollars of bonds through the pandemic. That would put upward pressure on market interest rates.

The selling accelerated as Powell acknowledged high inflation that has squeezed businesses and consumers isn’t getting better. That could force the Fed to get even more aggressive about raising rates and removing its support for markets.

The last time the Fed raised rates and shrank its balance sheet at the same time was in late 2018. The S&P 500 lost nearly 20 per cent.

“Since the December meeting, I’d say the inflation situation is about the same, but probably slightly worse,” Powell said. “It hasn’t gotten better. It’s probably gotten just a bit worse, and that’s been the pattern,” according to Powell

He also said that there is room to raise interest rates without hurting the labour market, and would not rule out the possibility that the Fed could raise short-term rates at any of its seven remaining meetings this year, or opt for a larger-than-usual increase at any one of them.

The Fed’s near-zero interest rates helped to boost stock prices for nearly two years, but markets have been volatile since Powell and other officials in mid-December said plans to wind down economic stimulus might be accelerated to fight surging inflation.

In energy markets, benchmark US crude lost 73 cents to US$86.62 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose US$1.75 to $87.35 on Wednesday. Brent crude, the price benchmark for international oils, shed 72 cents to US$88.02 per barrel in London. It advanced US$1.76 the previous session to US$89.96.

The dollar edged up to 114.67 yen from Wednesday’s 114.55 yen. The euro declined to US$1.1223 from US$1.1254.

AP