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Asia Stocks Suffer as Rising Recession Fears Stalk Markets

Traders across the region were in downbeat mood over slowing growth, surging inflation and impending rate hikes


Asia stock markets slid again on Friday.
Risk appetite was sluggish after the US Federal Reserve delivered its third 75 bps rate hike in a row on Wednesday and warned that there are more to come. Global stocks have sunk to their lowest in two years. Photo: Reuters.

 

Asian stocks were in retreat on Wednesday forced back by gloomy forecasts of a global economic slowdown, soaring prices and continued political tensions.

Equity markets across the region posted losses as investors struggled to find much optimism as economies struggle to cope with slipping growth and squeezed supply chains.

Japan’s Nikkei fell on Wednesday after a two-day rally, dragged down by energy stocks, as sentiment was weighed by fears of recession. The Nikkei share average fell 1.20% to 26,107.65, while the broader Topix slipped 1.23% to 1,855.97.

 

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“Investors’ focus has shifted to slowdown risks stemming from the ongoing tightening monetary policy,” Ikuo Mitsui, a fund manager at Aizawa Securities, said.

“Wall Street rose overnight but that was because investors bought back growth shares that were beaten-down on concerns about rate increases.”

In Japan, oil explorers tumbled almost 10% to become the worst performer among the 33 industry sub-indexes on the Tokyo Stock Exchange.

Tokyo travel and leisure-related shares also fell, as mass Covid-19 testing in China stoked fears of new potential lockdowns.

Across the East China Sea, Shanghai shares dropped the most in six weeks, and Hong Kong’s stock benchmark fell as China continued to grapple with Covid flare-ups, while energy stocks tracked a sell-off in the global oil market.

The Shanghai Composite Index fell 1.43%, the biggest one-day percentage fall since May 24. The blue-chip CSI300 Index lost 1.5%, while Hong Kong’s benchmark Hang Seng Index weakened 1.22%. 

The Shenzhen Composite Index on China’s second exchange dropped 1.15%, or 25.78 points, to 2,207.20.

 

China, Hong Kong Energy Shares Tumble

China is fighting a Covid-19 resurgence on multiple fronts across the country including an emerging cluster in Shanghai, spurring mass testing drives and fresh restrictions.

“The flare-ups in places such as Shanghai and Anhui contributed to the stock market weakness,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.

Energy shares tumbled more than 4% in both China and Hong Kong, after a slump in global oil prices amid fears of a global recession.

Tech shares were the only bright spot on the mainland, with the tech-focused STAR50 Index rising 1%, led by chipmakers.

Elsewhere across the region, shares in energy exporters Indonesia and Malaysia slipped up to 1.5% and 1.3%. Indian stocks edged ahead though with Mumbai’s signature Nifty 50 index up 0.86%, or 136.10 points, at 15,946.95.

MSCI’s index of Asia-Pacific stocks outside Japan fell 1%, led by a 2% drop for Taiwan’s benchmark index.     

 

Oil, Euro Recover

Globally, an air of calm returned with the euro steadying after dropping to a two-decade low and oil back above $100 a barrel following a near 10% plunge a day earlier.

The single currency traded at $1.025, a fraction above its weakest level since late 2002 touched overnight as fears of a slowdown and rising commodity prices weighed. 

Government bond yields across the euro area nudged up too, and European stocks also making gains, while Brent crude bounced almost 3% after slumping on Tuesday 9.5% to its lowest in 2-1/2 months.

Nevertheless, fears over growth that have stalked markets in recent days were lingering, investors said.

“The market moves over the past couple of days have been classic recessionary pricing,” said Hugh Gimber, global market strategist at JP Morgan Asset Management. “Investors are really becoming more cognisant of the risks.”

 

Eyes Again on Fed Minutes

The dollar index was just off its overnight 20-year peak at 106.57, with safe havens in demand including the Japanese yen in demand.     

The MSCI world equity index, which tracks shares in 50 countries, was up 0.1%. S&P 500 futures pointed to gains of about 0.3% on Wall Street. 

Brent crude futures rose almost 3% to $105.85 a barrel, with supply concerns returning to the fore even as worries about a global recession linger.

The Federal Reserve publishes minutes later on Wednesday from the June meeting, where it announced the sharpest hike in the US benchmark interest rate in nearly 30 years. It is likely to foreshadow more hikes as Fed officials have said their top priority is fighting inflation, even at the cost of growth.    

“The probability of a soft landing had massively declined,” August Hatecke, the co-head of UBS Wealth Management Asia Pacific told investors at a conference in Singapore. 

 

Key figures

Tokyo – Nikkei 225 < DOWN 1.20% at 26,107.65 (close)

Hong Kong – Hang Seng Index < DOWN 1.22% at 21,586.66 (close)

Shanghai – Composite < DOWN 1.43% at 3,355.35 (close)

New York – Dow < DOWN 0.42% at 30,967.82 (Tuesday close)

 

  • Reuters with additional editing by Sean O’Meara

 

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Sean O'Meara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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