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 rates by 75 basis points and later announced more hikes, fueling recession worries.
The Hang Seng Index (HSI) was down 2.6%, breaking below 18,000 before recovering slightly. As of 3:30 a.m., it was down 2% to 18,079, its lowest level since December 2011. Australia’s S&P/ASX 200 index fell 1.6%, while Japan’s Nikkei 225 (N225) and South Korea’s Kospi both fell 0.6%. China’s Shanghai Composite Index (SHCOMP) fell 0.3%.
The declines came after the Federal Reserve approved its third consecutive 75-basis-point rate hike on Wednesday, in an aggressive move to combat white-collar inflation plaguing the U.S. economy.
The big hikes, which markets missed just a month ago, take the US central bank’s benchmark lending rate to a new target range of 3-3.25%. It is the highest since the 2008 global financial crisis.
“If you compare this rate hike cycle to previous rate hike cycles going back to 1983, the Fed has never raised rates this much in such a short period of time,” said David Chao, Asia Pacific global market strategist (ex-Japan). ) at Invesco.
“It is becoming increasingly difficult for the US to avoid a recession given the Fed’s ‘strong and rapid’ rate hikes,” he added.
Hong Kong pegs the value of its currency to the US dollar, and to maintain that link the city’s central bank also raised its key rate by 75 basis points on Thursday.
The Bank of Japan, on the other hand, cut short-term interest rates by 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, touching a 24-year low.
Investor sentiment in the region was hurt by a number of other factors, including rising tensions between the US and China over Taiwan. US Navy and Canadian warships transited the Taiwan Strait on Tuesday, two days after President Joe Biden said the US military would defend Taiwan if China’s military launched an invasion of the self-ruled democratic island.
“Geopolitics, the China slowdown story, the potential for energy rationing in Europe, the strong dollar and fragile-looking domestic houses. [US] equity and housing markets point to clear downside risks,” ING analysts said in a note on Thursday.
“The Federal Reserve’s more aggressive rate hike profile and tighter monetary conditions will increase the threat,” they added.
— Emi Jozuka, Junko Ogura, Kathleen Benoza in Tokyo contributed to this report.