Singapore, May 10 (BNA): Asian shares fell to their lowest levels in nearly two years, Tuesday, as investors worried about the toxic mixture of high interest rates and lower economic growth.
Rising fears of a recession and a slowdown in China have dragged commodity-linked currencies and oil prices lower, although safe flows have kept the dollar near 20-year highs, Reuters reports.
MSCI’s broadest index of Asia-Pacific shares excluding Japan fell 2.3% to 515.7, falling for the seventh straight session and extending losses to 18% so far this year. The index later trimmed its losses, falling 1.3%.
Across Asia, stock indices were a sea of red but traded above today’s lows in choppy markets. The Nikkei lost 0.9%, Australian shares shed 1.3%, Korean stocks lost 1.2%, and Taiwanese stocks shed 0.3%.
“Chinese growth is facing significant headwinds, whether you look at the official or private sector PMIs,” said Song Seng-won, economist at CIMB Private Banking.
“Weak global growth is a wall of continued anxiety for markets as investors look beyond the next three to six months. The view on growth momentum appears to be that post-pandemic retaliatory spending may be affected by higher borrowing costs,” he said.
The MSCI Asia Index has fallen to its lowest level since early July 2020. Chinese stocks are the worst performing among the major markets so far this year, posting losses of between 21 and 25%. However, stock indices rose in Singapore and Indonesia.
Growth fears resurfaced after central banks in the United States, Britain and Australia raised interest rates last week and investors prepared for further tightening as policymakers grapple with high inflation.
Hong Kong’s main stock index returned from a one-day holiday sharply lower on Tuesday and fell more than 4% before nearly halving losses.
On Monday, Shanghai and Beijing tightened COVID-19 restrictions that have already taken a heavy toll on the world’s second largest economy.
China’s export growth slowed to its weakest in nearly two years, data showed, as the central bank pledged to ramp up support for the sluggish economy.
US stock futures turned positive after falling earlier. S&P 500 stock futures are up 0.4%, Dow Jones futures are up 0.3%, and Nasdaq futures are up 0.7%.
Overnight, US stocks continued the sell-off on Friday as investors rushed to protect themselves from the possibility of a weakening economy.
“The idea of a benign and gentle tightening cycle has evaporated,” ANZ analysts said in a report.
“The reality is that the Fed cannot control the supply side of the economy in the short term, as long as key indicators such as the labor force participation rate remain low and Chinese exports slow, the risk of inflation, and therefore interest rates, is high,” ANZ said.
Oil prices fell on demand concerns as coronavirus lockdowns continued in China, the largest oil importer.
Brent crude fell 1% to $104.75 a barrel, and US West Texas Intermediate crude fell 1.1% to $101.96 a barrel, adding to a 6% decline in the previous session. Both contracts are still up 35% so far this year.
Commodity-linked currencies, including Australian and Canadian currencies, have been hit as oil prices drop.
The Australian dollar fell as low as $0.6920, its weakest since July 2020, after dropping 1.7% overnight. The drop in oil prices also affected the Canadian dollar, which fell to 1.3037 Canadian dollars per dollar, its weakest level since November 2020.
The dollar index settled at 103.6, after rising to an overnight high of 104.19, its highest level in 20 years.
US Treasury yields, which rose sharply on expectations of violent tightening by the Federal Reserve, took a breather after Atlanta Fed President Rafael Bostic refused to back down from proposals to raise interest rates by 75 basis points at the upcoming Fed meeting.