Analysts say possibility of U.S. rate hike could shake up markets
Shares in South Korea shipping giant Hyundai Merchant Marine Co. were sharply down Thursday.
Shares in Asia were choppy and shares were sliding — except in China and Japan — as many investors grow cautious about the stronger chance that U.S. interest rates will rise in June.
In China, the Shanghai Composite SHCOMP, +0.14% recently rose 0.6%, while Japan’s Nikkei Stock Average NIK, +0.01% opened higher but pared gains to recently trade about flat. But Hong Kong’s Hang Seng Index HSI, -0.64% dropped 0.4%, Korea’s Kospi SEU, -0.51% fell 0.5% and Australia’s ASX/S&P 200 XJO, -0.61% sank 0.7%.
Many investors across the Asia-Pacific region pulled back after the U.S. Federal Reserve’s April meeting minutes suggested a June interest-rate increase was still in the cards if data supported the case that the American economy was getting stronger.
The U.S. dollar strengthened against its major peers after the minutes were released, putting pressure on some Asia-Pacific stock markets and prices for commodities.
“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.”
Investors were initially more positive in Japan, where stocks were up as much as 0.5% in the early morning. Shares gained after the yen weakened overnight.
A weaker currency helps Japanese exporters, who can sell their goods at more competitive prices overseas and can increase earnings made abroad when they are repatriated into yen.
“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. The yen weakened to 110 per U.S. dollar in the early morning, and “that’s going to ease a little bit of pressure on exporters and potentially is good for stocks,” he said.
Japanese financial shares were leading the market higher on expectations that higher U.S. interest rates could boost their net interest margins. Financial stocks had suffered in recent weeks in an ultralow interest-rate environment. Dai-ichi Life Insurance Co. 8750, +2.80% rose 4.3% and Mitsubishi UFJ Financial Group Inc. 8306, +0.82% advanced 3.2%.
In China, technology and telecom stocks rallied, with the Nasdaq-style ChiNext board in Shenzhen up 2.4%. Trading volumes, however, were thin as investors were uncertain about the Chinese economy.
“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.
In Korea, shares of Hyundai Merchant Marine Co. 011200, -15.04% plummeted 11% after the company and its creditors failed to reach an agreement Wednesday over charter rate cuts with foreign shipowners, which is part of its debt restructuring efforts.
The price of Brent crude oil slipped in early Asia trading hours to $48.07 a barrel. Earlier this week, Brent had neared the psychologically-important $50 mark but failed to breach it.