October 5, 2022

Hong Kong stocks hit an 11-year low after historic Fed rate hike

2 min read



Hong Kong
CNN Business

Hong Kong stocks hit their lowest level in more than a decade on Thursday and other Asian markets fell after the US Federal Reserve. Rates were hiked by 75 basis points. And forecasts of further increases ahead fuel fears of a recession.

Hang Seng

(HSI)
The index fell as much as 2.6 percent, before recovering slightly, breaking below 18,000 points. By 3.30 am ET it was trading down 2% at 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 percent. China’s Shanghai Composite Index

(SHCOMP)
fell to 0.3 percent.

The decline came as the Federal Reserve on Wednesday approved its third consecutive 75 basis point hike in an aggressive move to tackle white-hot inflation that has plagued the US economy.

The Exchange Square complex, which houses the Hong Kong Stock Exchange, in Hong Kong, China, Wednesday, July 13, 2022.

The supersized hike, which was unimaginable to markets a few months ago, pushes the US central bank’s benchmark lending rate to a new target range of 3%-3.25%. This is the highest since the global financial crisis in 2008.

“If you compare this cycle of rate hikes to previous rate hike cycles since 1983, the Fed has never raised rates this short,” said David Chao, global market strategist, Asia Pacific (formerly Japan) said. ) at Invesco.

He added that it was becoming increasingly difficult for the US to avoid a recession given the Fed’s “tremendous and rapid” rate hikes.

Hong Kong pegs the value of its currency to the US dollar, and the city’s central bank raised its key rate by 75 basis points on Thursday to maintain that peg.

Meanwhile, the Bank of Japan kept short-term interest rates at minus 0.1 percent on Thursday, maintaining its policy of stimulating the economy. The Japanese yen fell to 145 against the US dollar after the decision, hitting a fresh 24-year low.

Several other factors hurt investor sentiment in the region, including rising tensions between the US and China over Taiwan. U.S. Navy and Canadian warships moved through the Taiwan Strait on Tuesday, just two days after President Joe Biden said U.S. military personnel would defend Taiwan when the Chinese military invades the self-governing island.

“The geopolitical backdrop, the China slowdown story, the prospect of energy rationing in Europe, the strong dollar, and a weak-looking domestic [US] Equity and housing markets point to clearing recession risks,” ING analysts said in a note on Thursday.

“A more aggressive Federal Reserve rate hike profile and tighter financial conditions will further intensify risks,” he added.

Emi Jozuka, Junko Ogura, Kathleen Benozza in Tokyo contributed to this report.



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