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Bear Markets Show Pain Across Asia Equities as Fed Hikes Near

Weeks of fretting over the Federal Reserve’s plan to combat inflation with higher interest rates is coming to fruition.

Bear Markets Show Pain Across Asia Equities as Fed Hikes Near
A trader works on the floor of the New York Stock Exchange. (Photographer: Michael Nagle/Bloomberg)

Weeks of fretting over the Federal Reserve’s plan to combat inflation with higher interest rates is coming to fruition as Asian stock markets tumble into bear markets and technical corrections.

The MSCI Asia Pacific Index slid as much as 2.7% Thursday, pushing it down more than 17% from its recent high, after Fed Chair Jerome Powell signaled a March lift-off for interest rates. South Korea’s tech-heavy Kospi extended its drop since a July peak to 21%, entering a bear market, as investors dumped growth stocks amid rising yields. China’s CSI 300 Index also slipped into bear territory.

“Investors appear to have become increasingly conscious of the risks that the Fed may end up cooling any economic growth with too much monetary tightening,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo.

Bear Markets Show Pain Across Asia Equities as Fed Hikes Near

The intensifying selloff has put Asia’s stock benchmark on track for its worst monthly loss since March 2020. That’s after it trailed the MSCI AC World Index by 20 percentage points last year. Australia’s key gauge entered a technical correction Thursday as it slumped 10% from its recent high, following similar occurrences for benchmarks in Japan and New Zealand earlier this week.

“The expected interest-rate hike by the Fed may potentially delay the emerging Asia economic recovery, that is one of the major risks,” said Jessica Tea, an investment specialist at BNP Paribas Asset Management. “The Fed tightening is also putting pressure on some central banks in Asia to follow through, and this could have some impact on the equity market.”

Speaking after the Federal Open Market Committee meeting, Powell said the central bank was ready to raise interest rates in March and didn’t rule out moving at every meeting to tackle inflation. U.S. equity futures tumbled in Asian trading, erasing gains seen earlier, following a volatile New York cash session.

‘Headache for Growth’

Technology names from Alibaba Group Holding Ltd. to Sony Group Corp. were the biggest drags on the MSCI Asia gauge Thursday as rising bond yields continue to hammer growth stocks, whose values are based on future prospects. In Hong Kong, the Hang Seng Tech Index plunged 3.8%.

“Powell not ruling out raising rates at every FOMC meeting certainly seemed to have surprised the street, with seven more meetings to go for the rest of the year,” said Takeo Kamai, head of execution services at CLSA Securities Japan. “The moves in Treasury yields will likely continue to be a headache for growth stocks.”

Even as it approached the grim bear-market milestone, China’s benchmark CSI 300 Index fared better than the regional benchmark as it was down 2% on the day. Global brokerages have turned increasingly bullish on the nation’s equities as the People’s Bank of China eases policy, diverging from the Fed.

Southeast Asian markets, which typically have low exposure to the tech sector, also fared better on Thursday, with the MSCI Asean Index down less than 1%.

“Powell’s indication that rate hikes and QT might be faster than the market expects certainly raised concerns in Asian equities,” John Vail, chief global strategist at Nikko Asset Management, wrote in a note. “Globally, stocks with very high valuations will need to prove that their outlooks are even better than expected in order to avoid even further de-rating.”

©2022 Bloomberg L.P.