- New Zealand equities gauge is on track for a bear market
- Singapore stock index is poised to erase year-to-date gains
By Ishika Mookerjee
June 14, 2022
Stock market indexes in Asia hit bleak milestones in quick succession on Tuesday as investors grew more worried that aggressive interest rate increases in the US could hit corporate earnings.
The MSCI Asia Pacific Index dropped as much as 2% to its lowest in a month after the world equities gauge entered a bear market overnight. New Zealand’s stock index extended its decline to 22% from a peak reached last year, while Singapore’s measure was poised to wipe out its gains for 2022.
Traders are betting that the Fed will deliver a 75-basis-point rate increase in this week’s meeting — the biggest since 1994 — after US inflation hit a four-decade high in May. This is further muddying the economic outlook at a time supply chains are snarled, weighing on the valuation and profit estimates for the MSCI Asia index, which has lost 18% this year.
“Bets are off for all asset classes as investors brace themselves for tough action from the Fed to counter higher-than-expected inflation,” said Justin Tang, head of Asian research at United First Partners in Singapore. “The renewed lockdowns in China are also not going to be helpful.”
Central banks from South Korea and Australia to India have been raising rates in response to accelerating inflation, with the latter two announcing 50-basis-point increases in their latest decisions. China’s persistent zero-Covid strategy is another factor disproportionately affecting companies in Asia.
Singapore’s Straits Times Index is near a correction, down 9.7% from an April high, while Australia’s S&P/ASX 200 Index has dropped 13% over a similar period.
However, investors have identified some potential areas of outperformance as Asia’s stock measure has held up better than global peers. While China has walked back on loosening some Covid-19 restrictions in Beijing and Shanghai, traders see the country’s fiscal and monetary easing stance giving its beleaguered stocks a further boost.
“China might outperform global equities, as it did in May and early June,” if consumption resumes in following months after a relaxation in lockdowns, said Herald van der Linde, head of APAC equity strategy at HSBC Holdings Plc.
Meanwhile, commodity-exporting Southeast Asian countries such as Indonesia, which are also benefiting from border reopenings, are expected to continue to shine. The Jakarta Composite Index rose on Tuesday, adding to its advance of 6.5% this year.