Asian Stocks Rise as Fed Rate Hike Looms, China Extends Rally

By Ambar Warrick

Investing.com-- Most Asian stock markets rose slightly on Wednesday as investors hunkered down ahead of a Federal Reserve interest rate decision, while Chinese equities rebounded further on growing speculation that the country will scale back its strict zero-COVID policy.

China’s Shanghai Shenzhen CSI 300 index jumped 1.7%, while the Shanghai Composite index added 1.5% as rumors circulated on social media that China is considering a full reopening by as soon as March 2023. The country is also expected to convene a meeting later this week on the matter.

The rumors come as a major source of relief for beleaguered Chinese markets, which were battered this year as a series of COVID restrictions ground economic activity to a halt.

Chinese stock indexes rallied as much as 3.5% on Tuesday, with bargain buying also spurring a recovery. The CSI 300 index recovered from a 31-month low.

Easing COVID lockdowns in China are also positive for broader Asian economies, given their reliance on China as a trading partner. Hong Kong's Hang Seng index was the best performer on Wednesday, up 2.3% after an over 5% rally in the prior session.

Still, government officials denied any plans to scale back the zero-COVID policy. President Xi Jinping had also recently reiterated the country’s commitment to maintaining the policy.

Broader Asian markets crept higher, with focus turning squarely towards the conclusion of a Federal Reserve meeting later in the day. The central bank is widely expected to hike interest rates by 75 basis points, as it moves to curb stubborn inflation.

But markets will also be watching for any signals from the Fed on whether it plans to soften its hawkish stance, although recent data indicating strength in the U.S. economy reduces the chances of such a scenario.

Markets are still split over a 50 bps or 75 bps hike in December.

Rising U.S. interest rates weighed heavily on Asian stocks this year, as higher Treasury yields reduced the appeal of risk-heavy assets.

Most Asian markets crept higher on Wednesday. The Taiwan Weighted index added 0.5%, while Philippine stocks led gains across Southeast Asia with a 0.4% rise.

South Korea’s KOSPI index rose 0.2%, after data showed inflation rose more than expected in October. But slowing economic growth is likely to push the Bank of Korea into tapering its pace of interest rate hikes.

Japan’s Nikkei 225 index fell 0.1%, while India’s Nifty 50 lost 0.2%.