Band Anshuman Daga
SINGAPORE, May 10 (Reuters) – Asian stocks fell to their lowest in nearly two years on Tuesday as investors worried about the toxic cocktail of rising interest rates and falling economic growth.
Growing fears of a recession and a slowdown in China dragged commodity currencies and oil prices lower, although security flows kept the dollar near 20-year highs.
MSCI’s broadest non-Japan Asia-Pacific equity index .MIAPJ0000PUS fell 2.3% to 515.7, slipping for a seventh consecutive session and extending losses to 18% so far this year. The benchmark then pared its losses to trade down 1.3%.
Across Asia, stock indices were a sea of red but were trading above the day’s lows in volatile markets. The Nikkei .N225 lost 0.9%, Australian stocks .AXJO down 1.3%, Korean stocks .KS11 lost 1.2% and Taiwan stocks .TWII were down 0.3%.
“China’s growth faces significant headwinds, whether you look at the public or private sector purchasing managers’ index,” said Song Seng Wun, an economist at CIMB Private Banking.
“Slowing global growth is the lingering wall of worry for markets as investors look beyond the next 3-6 months. The view on growth momentum appears to be that post-pandemic revenge spending could be affected by higher borrowing costs,” he said.
MSCI’s Asian benchmark has fallen to its lowest since early July 2020. Chinese equities are the worst performers among major markets so far this year, posting losses of between 21% and 25%. Singapore .STI and Indonesian stock indices .JKSE however, ticked.
Growth concerns resurfaced after central banks in the US, Britain and Australia raised interest rates last week and investors braced for further tightening as policy makers fight soaring inflation.
Hong Kong’s benchmark stock index .HSI returned from a sharply lower holiday day on Tuesday and fell more than 4% before nearly halving losses.
On Monday, Shanghai and Beijing tightened COVID-19 restrictions, which have already weighed heavily on the world’s second-largest economy.
China’s export growth slowed to its weakest level in nearly two years, data shows, as central bank pledged to step up support for slowing economy
US stock futures turned positive after falling earlier. S&P 500 Stock Futures ESC1 rose 0.4%, Dow Jones futures YMc1 ticked 0.3% and Nasdaq futures NQc1 gained 0.7%.
Overnight, U.S. stocks extended Friday’s sharp selloff as investors rushed to hedge against the prospect of a weaker economy. .NOT
“The idea of a benign, mild 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 near term, so as long as key indicators like the labor force participation rate remain low and Chinese exports slow, the risk of inflation, and therefore interest rates, lies on the rise,” ANZ said.
Oil prices fell on demand worries as coronavirus lockdowns in China, the main oil importer, continued.
Crude Brent LCOc1 fell 1% to $104.75 a barrel and U.S. West Texas Intermediate crude CLc1 also fell 1.1% to $101.96 a barrel, adding to a 6% drop in the previous session. Both contracts are still up around 35% so far this year.
Commodity-linked currencies, including the Australian and Canadian currencies, have been hit hard by falling oil prices.
The Australian dollar AUD=D3 fell as low as $0.6920, its lowest since July 2020, after falling 1.7% overnight. Lower oil prices also hit the Canadian dollar CAD=D3which fell to C$1.3037 per dollar, its weakest since November 2020.
The dollar index =USD was stable at 103.6, after hitting 104.19 overnight, a new 20-year high.
US Treasury yields US10YT=RRwhich soared on expectations of aggressive tightening from the Federal Reserve, took a breather after Atlanta Fed President Raphael Bostic pushed back on suggestions of a massive interest rate hike. 75 basis points at the next Fed meeting.
World exchange rates since the beginning of the yearhttp://tmsnrt.rs/2egbfVh
Overall asset performancehttp://tmsnrt.rs/2yaDPgn
(Reporting by Anshuman Daga; Additional reporting by Alun John; Editing by Sam Holmes and Jacqueline Wong)
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