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Asian stock markets have taken a beating in the past few sessions as investors become increasingly wary of the US Federal Reserve’s upcoming rate hike and the resurgence of Covid-19 cases in China. Asian stocks have slipped into the bear territory as Wall Street hit a bear market milestone, bond yields have risen to a two-decade high on aggressive interest rate hikes and analysts fear the US might be headed into recession.
Chinese stocks have shown resilience after the economy started opening, but a resurgence of Covid-19 cases paired with the zero-Covid policy is worrying investors about another bout of lockdowns in the country. Additionally, the tightening policy by the US Federal Reserve is likely to cause a slowdown in China’s economy as well as the rest of Asia.
Asian stock markets face the brunt
Foreign investors have been dumping Asian equities and currencies over the past few weeks, with overseas investors dumping $145 m in emerging Asian bonds in May alone, the third straight month of selling.
The MSCI Asia Pacific Index, which represents large- and mid-caps across five developed markets and eight emerging markets in the Asia Pacific, has fallen over 5% in the month of June alone.
Global markets have come under pressure after the US reported a higher-than-expected inflation rate last week, pointing at an even aggressive rate hike by the US Federal Reserve.
“The inflation data are game changers that force the Fed to switch to a higher gear, front-loading policy tightening,” Jefferies strategist Aneta Markowska wrote in a research note. “Inflation isn`t peaking, it isn’t even plateauing. It is still accelerating, and it will likely do so in June.”
Market watchers are now expecting a 75-basis point increase from the US Fed, higher than the previous estimation of a 50-basis points hike.
Asian currencies have slipped into the red, with the Japanese Yen touching 135 against the dollar, the Indian rupee hit a record low of 78, whereas the Australian dollar has fallen over 8% in 2022.
