SINGAPORE – Asian stock markets slumped on Thursday amid heightened global slowdown fears after the US Federal Reserve signalled even more aggressive rate hikes ahead than investors had expected as it raised its key interest rate by a hefty 75 basis points for a third straight time.
Notably, Fed chairman Jerome Powell in comments on Wednesday vowed to “keep at it until the job is done” even at the risk of unemployment rising and growth slowing to a stall to fight inflation that has surged to the highest in 40 years in the United States.
The Straits Times Index (STI) dipped 0.28 per cent at the opening bell, and is down 0.17 per cent as of 3.31pm. Regionwide, Hong Kong was the hardest hit as growing US-China tensions, China’s slowdown and the Fed hike sent the Hang Seng plunging as much as 2.6 per cent on Thursday.
Japan and South Korea each shed 0.6 per cent. Shanghai was down 0.27 per cent.
Wednesday’s rate hike – the fifth this year – and a further escalation of the Russia-Ukraine war, sent the US dollar to a fresh two-decade high, fuelling concerns that investors could pull out of Asian equities and shift into US dollar-denominated assets.
Against the greenback, the Singapore dollar fell 0.2 per cent to 1.4200 as of 4.08pm on Thursday.
“If US dollar continues to strengthen and China doesn’t open up soon, there will be more risk of a slowdown in Asia, and that could trigger more fund outflows from Asian emerging markets,” Mr Shekhar Jaiswal, head of equity research at RHB Singapore, said.
“But Singapore will do slightly better because the Singdollar is strong relative to other Asian currencies. This is because the Monetary Authority of Singapore has been proactive in managing inflation by keeping the currency strong, which in turn makes SGD-denominated investments more attractive,” he said.
The local stock market has seen more institutional fund flows in recent weeks as Singapore is expected to benefit from trade and capital flows resulting from the relocation of global supply chains to South-east Asia, Mr Chen Guang Zhi, head of research for KGI Securities, said.
Institutional investors have been net buyers of nearly $556.8 million worth of shares in the past two weeks, compared with during the first eight months of this year when they were net buyers of nearly $357.4 million worth of shares.
For the quarter to date, DBS , OCBC Bank, Singtel, Keppel Corp, Singapore Airlines, Venture, Ascendas Reit, Genting Singapore, Sembcorp Industries and Jardine Matheson have led net institutional inflows.
The three big banks, which make up about 40 per cent of the STI’s overall weightage, are a defensive play in a rising interest rate environment.
The local banking sector is likely to see improved net interest income, but higher prospects of a hard landing in the US and a stagflationary European Union may not bode well for Singapore’s export-dependent economy, which may affect loan growth in the longer term, Mr Kelvin Tay, regional CIO, UBS Global Wealth Management, said.
The central bank’s projections showed that rates may rise further and US economic growth could slow. The median forecast is for the Fed funds rate to hit 4.4 per cent this year – higher than markets had priced and 100 basis points more than the Fed projected three months ago.