Hong Kong shares hit 11-year lows after historic Fed rate hike
Hong Kong shares hit their lowest level in more than a decade on Thursday, and other Asian markets also fell after the US Federal Reserve raised interest rates by 75 basis points and predicted more increases ahead, raising fears of a recession.
The Hang Seng Index (HSI) fell 2.6%, breaking below 18,000 points, before recovering slightly. By 3.30 a.m. ET, it was trading 2% down at 18079, its lowest level since December 2011. Australia’s S&P/ASX 200 was down 1.6%, while Japan’s Nikkei 225 (N225) and Korea’s Kospi were down 1. South by 0.6%. China’s Shanghai Composite Index (SHCOMP) was down 0.3%.
The declines came after the Federal Reserve on Wednesday approved a third straight hike of 75 basis points in a strong move to tackle the severe inflation plaguing the US economy.
The massive rally, which could not be understood by the markets just months ago, is taking the benchmark US central bank lending rate to a new target range of 3%-3.25%. This is the highest level since the global financial crisis in 2008.
said David Chow, global market analyst, Asia Pacific (formerly Japan) at Invesco.
“It is becoming increasingly difficult for the United States to avoid a recession due to the ‘strong and rapid’ interest rate hike by the Federal Reserve,” he added.
Hong Kong pegs the value of its currency to the US dollar, and in order to maintain this peg, the city’s central bank also raised the base exchange rate on Thursday by 75 basis points.
Meanwhile, the Bank of Japan kept short-term interest rates at -0.1% on Thursday, maintaining its policy of trying to stimulate the economy. The Japanese yen fell to 145 against the US dollar after the decision, hitting a 24-year low.
Investor sentiment in the region was affected by a number of other factors, including heightened tensions between the United States and China over Taiwan. The US Navy and Canadian warships crossed the Taiwan Strait on Tuesday, just two days after President Joe Biden said US military personnel would defend Taiwan if the Chinese military launched an invasion of the self-ruled island.
The geopolitical background, the story of the slowdown in China, the potential for energy rationing in Europe, the strong dollar, and the fragile-looking domestic [US] “Equity and housing markets point to removing recession risks,” ING analysts said in a note on Thursday.
“A rate hike by the Federal Reserve and tight monetary conditions will only intensify the threat,” they added.
– Emi Jozuka, Junko Ogura, Kathleen Benoza in Tokyo contributed to this report.