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Asian stocks fell across the board on Monday as investors updated their projections for “higher for longer” interest rates after strong US economic data last week.
Equities in Australia, Hong Kong, mainland China, India and South Korea fell on Monday morning after the US payrolls report on Friday showed 256,000 jobs were added in December, blowing past consensus and leading traders to slash expectations for rate cuts by the Federal Reserve.
The dollar index, which tracks it against the yen, pound and other major currencies, hit a more than two-year high on Friday. A stronger US economy could slow the Fed’s pace of interest rate cuts, draining investment out of other markets, including Asia.
“People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas. “With US interest rates so high you will have a liquidity drain in Asia, with capital flowing to the US or staying there.”
Australia’s S&P/ASX 200 index fell 1.3 per cent, while South Korea’s Kospi declined 1.1 per cent. India’s Sensex index fell 0.8 per cent. The Japanese market was closed on Monday.
“Emerging market equities traditionally perform better when US interest rates are lower,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “In fact, they are more sensitive to US rates than US equities themselves.”
Hong Kong’s Hang Seng retreated 1.4 per cent, while mainland China’s CSI 300 was down 0.5 per cent.
“The onshore [Chinese] market is still more resilient relative to external noise,” said Lui, who said mainland investors were still shifting funds from low-yield savings accounts into the equity market.
Nonetheless, mainland Chinese equities have steadily declined by 17 per cent since a peak on October 8 last year, as hopes for a bazooka-style stimulus from Beijing faded and concerns over the economic impact of Donald Trump’s second term hit the market.
“Some stimulus measures have been a positive surprise,” said Tirumalai, who acknowledged China was still in a “bear market”. “The extension of the trade-in scheme to a wider array of consumer goods for example came earlier than we thought.”
Oil prices rose to a four-month high after the US announced sweeping new sanctions on Russian oil on Friday.
Prices for Brent crude, the international benchmark, climbed 1.6 per cent to $81 a barrel, while US gauge West Texas Intermediate gained 1.7 per cent to $77.90 a barrel.
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