Asian stocks fall as rate hike jitters mount, China leads losses

By Ambar Warrick

Investing.com -- Most Asian stock markets retreated on Thursday, tracking a weak lead-in from Wall Street as fears of rising interest rates and slowing economic growth kept traders wary of risk-driven assets.

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes were among the worst performers for the day, down about 0.6% and 0.7%, respectively.

Chinese markets took little support from the People’s Bank of China keeping its benchmark lending rates at historic lows, even as the move points to more liquidity support for local stocks.

While data earlier this week showed that China’s economy grew more than expected in the first quarter of 2023, growth was driven largely by a resurgence in consumption. The country’s manufacturing sector, considered a bellwether for the economy, struggled to recover from a COVID-induced slowdown.

Hong Kong and China-listed stocks of electric carmakers also logged steep losses tracking Tesla Inc (NASDAQ:TSLA), which sank 6% after the close as the firm’s quarterly profit margin missed expectations amid an escalating price war.

Hong Kong shares of NIO Inc (HK:9866) (NYSE:NIO), Li Auto Inc (HK:2015) (NASDAQ:LI) and BYD Co Ltd (HK:1211) lost between 1.2% and 5%, while Shenzhen-listed units of Contemporary Amperex Technology Co Ltd (SZ:300750), a major battery supplier to Tesla, fell 2.5%.

Broader Asian markets moved in a flat-to-low range. Japan’s Nikkei 225 index rose 0.1%, while Australia’s ASX 200 index moved little.

The Taiwan Weighted index lost 0.6%, with Taiwan Semiconductor Manufacturing (TW:2330) (TSMC), the biggest stock on the index, trading lower ahead of its first-quarter results due later in the day. On the other hand, shares of China’s Semiconductor Manufacturing International Corp (HK:0981), a major competitor to TSMC, surged 4.2% to a record high, also helping Hong Kong’s Hang Seng index log small gains.

Sentiment towards regional stocks was largely hampered by growing fears of rising global interest rates, after strong inflation readings from the UK and euro zone cemented expectations of more rate hikes by the Bank of England and European Central Bank.

Hawkish comments from Federal Reserve officials also saw markets question bets that the central bank will pause its rate hike cycle as soon as June, which in turn spurred a weak overnight close on Wall Street.

Fed Fund futures prices show markets pricing in an 85% chance the Fed will raise rates by 25 basis points in May, and also show a growing number of participants positioning for a similar hike in June.

Rising interest rates in major economies bode poorly for Asian markets, given that they diminish the returns from more risk-driven assets. Tighter monetary conditions also limit foreign capital flows into the region.