Shares in Asia slid in lackluster trading over worries U.S. interest rates will rise earlier than expected.
Hong Kong’s Hang Seng Index HSI, -0.67% lost 0.7% Thursday, Australia’s S&P/ASX 200 fell 0.6% XJO, -0.61% and Korea’s Kospi retreated 0.5% SEU, -0.51% Shares ended largely flat in Japan NIK, +0.01% and China SHCOMP, -0.02%
Minutes of the U.S. Federal Reserve’s April meeting, released overnight, show officials wanted to keep the door open for raising interest rates in June if data shows improvement in the American economy. Higher rates could prompt investors seeking greater yield to draw money out of riskier assets, such as emerging-Asia stocks, in favor of U.S. assets.
The prospect of higher U.S. rates drive the dollar higher, putting pressure on energy shares and commodities prices. Australia’s BHP Billiton Ltd. BHP, -3.71% fell 3.7%, and Rio Tinto Ltd. RIO, -3.34% lost 3.3%.
“In Asia it should be quite negative—especially in emerging markets we have seen the USD bid higher” against Asian currencies, said Tareck Horchani, a senior sales trader at Saxo Capital Markets. “This rate hike is not really a good sign. I believe we might see some larger correction in Asia over the next few days.”
In Japan, stocks initially climbed on relief over a weaker yen USDJPY, -0.20% Shares of financial companies were up on hopes that higher U.S. rates could boost their net interest margins. But the gains were erased as the local currency became more volatile in the afternoon. The yen recently traded at 110.03 to the dollar.
A weaker yen helps Japanese exporters by making their prices more competitive overseas and increasing their overseas earnings when they are repatriated and converted into the local currency.
“The strength of the yen has been a real problem on Japanese exporters,” said Alex Furber, senior client-services executive for CMC Markets in Singapore. A weaker yen is “going to ease a little bit of pressure on exporters and potentially is good for stocks,” he said.
A rally in technology and telecom stocks in the Shanghai and Shenzhen markets fizzled in thin trading as uncertainty about the Chinese economy lingered.
“Weak economic fundamentals and tightening liquidity as a result of sustained [deleveraging] efforts prompted more investors to stay on the sideline,” says Jacky Zhang, an analyst at BOC International.
Chinese commodities futures cooled further Thursday. Authorities late Wednesday called on local governments, banks and steel mills to slash capacity through restructuring and bankruptcy. Officials also announced subsidies 100 billion yuan ($15.3 billion) in subsidies to cut capacity in the steel sector. The main steel-rebar futures contract fell 2.3%, while iron-ore futures lost 3.6%.
In Korea, shares of Hyundai Merchant Marine Co. 011200, -15.04% fell 15% after the company and its creditors failed to reach an agreement Wednesday with foreign ship owners on the charter-rate cuts Hyundai is seeking as it attempts to restructure its debt.