Asian equities dipped sharply as investors weigh worsening COVID-19 situation in China and the potential for more aggressive interest rate increase tolling on economic growth.
Mainland China shares closed inching down by nearly 5% with Hong Kong closed down by 3.73%. Shares in Thailand, South Korea and Japan also closed on sharply loss. The MSCI Asian Index ex Japan is down by 1.19%.
China following rising infection rate ordered mandatory COVID tests in a district of Beijing. The offshore yuan fell to the lowest level since April 2021 after the daily fixing which was in line with forecasts.
Expectations that the Federal Reserve will move aggressively to tighten monetary policy continue to pressure the stock market.
“It’s no surprise and it makes all sorts of logical sense that the market should be concerned about the Covid situation because that clearly is impacting economic activity. It’s impacting earnings potential for many parts of the market,” said Timothy Moe, head Asia-Pacific equity strategist at Goldman Sachs as reported by Investing.com.
The Federal Reserve Chair Jerome Powell endorsed a 50 basis point hike next and at least one more such move.
“There has been little to avert the investor pessimism as inflation and interest rate expectations start to bite,” Geir Lode, head of global equities at Federated Hermes Ltd., said in a note.
“In particular due to the uncertainty of the macro environment, expectations are low with regard to forward estimates and guidance, building on lowered expectations from the previous quarter.”
Crude oil inched down weighing on demand cutback from China with WTI trading below $100 a barrel while the Brent is trading around $102 a barrel down by 4.31%.