Asian Stocks Decline to 10-Week Low as Fed Rate Increase Loomsby
Asian stocks fell, with the regional benchmark index poised for its lowest level in 10 weeks, amid concern over turbulence in the credit markets as the Federal Reserve prepares to raise U.S. interest rates.
The MSCI Asia Pacific Index fell 0.6 percent to 127.30 as of 4:01 p.m. in Hong Kong, heading for the lowest close since Oct. 2. Raw material producers led declines, overshadowing the first gain in 10 days for energy companies after oil futures rallied 1.9 percent on Monday. Equities in Hong Kong slid for a ninth straight day, the longest losing streak since 1984.
Commodities are at risk of extending declines as China’s slowdown hurts demand and the world’s largest user shifts its economic model away from raw materials, according to Stephen Roach, former non-executive chairman for Morgan Stanley in Asia.
A sense of unease prevails in global financial markets as the Fed starts its two-day policy meeting on Tuesday, with traders pricing in 76 percent odds that rates will be raised for the first time since 2006, ending the era of near-zero borrowing costs. Tightening policy would solidify the Fed’s divergence from central banks in Europe and Japan.
The prospect of more expensive cash in the U.S. and a deepening rout on commodities markets have helped erase $2.5 trillion from the value of global equities since Dec. 1. Bond market anxiety also has caught the notice of equity investors after Third Avenue Management froze redemptions at a high-yield mutual fund last week. Prices on U.S. high-yield bonds kept sinking Monday as London-based Lucidus Capital Partners became the latest fund to liquidate holdings as investors demanded their money back.
“There’s no chance in the world the Fed will hold off raising rates because of this credit-market turbulence,” Michael McCarthy, chief markets strategist in Sydney at CMC Markets, said by phone. “The collapse of junk-bond funds is not a sign that credit markets are about to freeze. It could lead up to a series of events, but in itself this is not a sign of systemic stress in credit markets.”
China’s Shanghai Composite Index slipped 0.3 percent as trading volumes fell 34 percent below the 30-day average. Property developers advanced after the Communist Party’s Politburo vowed to stabilize the real estate market.
Hong Kong’s Hang Seng Index lost 0.2 percent for a ninth straight decline. That’s the longest stretch of losses since July 1984, when Britain was in the middle of negotiating the city’s handover to China. The gauge fell 5.4 percent over the period.
Japan’s Topix index dropped 1.7 percent. Australia’s S&P/ASX 200 Index fell 0.4 percent, while New Zealand’s S&P/NZX 50 Index added 0.1 percent. South Korea’s Kospi gained 0.3 percent. Taiwan’s Taiex rose 0.4 percent. Singapore’s Straits Times Index slipped less than 0.1 percent.
E-mini futures on the Standard & Poor’s 500 Index added 0.2 percent after the underlying measure rose 0.5 percent on Monday, surging in the final minutes of trading as a rebound in U.S. crude to back above $36 a barrel overshadowed credit-market turbulence and weakness in commodity shares before the Fed meeting. Oil resumed declines on Tuesday, dropping 0.5 percent.