Asian stock markets slide as Federal Reserve dithers on rate cuts

By Ishika Mookerjee


Asia’s stock benchmark briefly erased its gain for the year, as worries about higher-for-longer interest rates and geopolitical tensions triggered losses across the region.
 

The MSCI Asia Pacific Index fell as much as 0.4% Wednesday before paring losses, with consumer discretionary and industrials among the biggest drags. The measure was hovering around 169.39, the closing level reached on the last trading day of 2023, after Federal Reserve Chair Jerome Powell signaled policymakers will wait longer than previously anticipated to cut interest rates.

Asia’s “markets are a bit more vulnerable to the combination of geopolitical shocks in the Middle East and rapid shift in interest rate expectations, as they have been operating on lower rates and tend to rely heavily on energy imports and external demand,” said Homin Lee, senior macro strategist at Lombard Odier. “We see volatility persisting in the near-term and remain neutral.”

The repricing of Fed rate bets, a stronger dollar, a flare-up in Middle East tensions and a slow economic recovery in China are creating headwinds for Asian stocks, which had gained more than 5% at one point in 2024. The pullback has even drawn in high-flying chip stocks and Japanese shares as investors take risk off the table.

Still, Hong Kong stocks were little changed while mainland China gauges sharply rebounded from Tuesday’s losses that were driven by mixed economic data. Chinese small-caps rose, paring this week’s selloff, as the nation’s top securities regulator sought to ease concern over the potential delisting of firms with weak financial health.

Overseas investors have sold more than $2.2 billion worth of equities on a net basis in emerging Asia excluding China in April, according to latest data compiled by Bloomberg. The bulk of the selling happened this week.

Other bleak milestones are flashing across the region as the 10-day historical volatility on the MSCI index spikes. The Australian stock benchmark briefly erased its 2024 gains on Tuesday while South Korea’s small-cap gauge remains on the verge of entering a technical correction.