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Asian shares fell across the board on Monday as investors updated their expectations for “higher for longer” interest rates following strong US economic data last week.
Stocks in Australia, Hong Kong, mainland China, India and South Korea fell on Monday morning after the US jobs report on Friday showed 256,000 jobs added in December, bucking the previous consensus and prompting traders to lower expectations for an interest rate cut by the Federal Reserve.
The dollar index, which measures it against the yen, pound sterling and other major currencies, hit its highest level in more than two years on Friday. A stronger US economy could slow the pace of interest rate cuts by the Federal Reserve, draining investment from other markets, including Asia.
“People are amazed at the economic strength in the US,” said Jason Lowe, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “With US interest rates that high, there will be a drain on liquidity in Asia, with capital flowing into the US or staying there.”
Australia's S&P/ASX 200 index fell 1.3 per cent, while South Korea's Kospi fell 1.1 per cent. India's Sensex fell 0.8 percent. The Japanese market was closed on Monday.
“Emerging market stocks typically do better when US interest rates are lower,” said Sunil Tirumalai, head of Asian equity strategy at UBS. “In fact, they are more sensitive to US interest rates than US stocks themselves.”
The Hang Seng Index in Hong Kong fell by 1.4 percent, while the CSI 300 Index in mainland China fell by 0.5 percent.
“The (Chinese) domestic market is still more resilient compared to external noise,” said Lowe, who said mainland investors were still shifting money from low-yield savings accounts into the stock market.
However, stocks in mainland China have fallen steadily by 17 percent since their peak on October 8 last year, as hopes for a bazooka-style stimulus from Beijing faded and concerns about the economic impact of Donald Trump's second term hit the market.
“Some of the stimulus measures were a positive surprise,” Tirumalai said, acknowledging that China was still in a “bear market.” “Expanding the scope of the trading system to include a wider range of consumer goods, for example, came earlier than we thought.”
Oil prices rose to their highest level in four months after the US announcement Widespread new sanctions on Russian oil Friday.
Brent crude prices, the international benchmark, rose by 1.6 percent to $81 per barrel, while US benchmark West Texas Intermediate crude rose by 1.7 percent to $77.90 per barrel.
