Asian shares mostly lower after tech-led retreat on Wall St
Shares fell in Asia on Friday after technology companies led Wall Street benchmarks lower as investors weighed the implications of higher interest rates, surging coronavirus cases and tensions between Beijing and Washington.
Tokyo, Hong Kong, Shanghai declined, but shares rose in Sydney.
U.S. shares dropped a day after the Federal Reserve said it’s preparing to begin raising rates next year to fight inflation.
Traders were also considering other moves by global central banks. The Bank of England became the first central bank among leading economies to raise interest rates to fight inflation. The European Central Bank still plans to trim its pandemic stimulus, but not abruptly.
The Bank of Japan said Friday it would reduce some of its pandemic support measures, reducing purchases of corporate bonds to pre-crisis levels after March. It also extended by six months extra support for lending to small companies. But its board meeting otherwise kept ultra-loose monetary policy mostly unchanged.
“Japan’s economy has picked up as a trend, although it has remained in a severe situation due to the impact of COVID-19 at home and abroad,” it said in a statement. It noted continued risks from the pandemic and supply chain disruptions.
The Japanese central bank’s decision was “striking dovish” compared with other central bank moves this week, Marcel Thieliant of Capital Economics said in a commentary.
He noted that unlike other major economies, inflation is not a big concern. The BOJ has been trying and failing for years to attain an inflation target of 2%.
“The upshot is that the Bank of Japan will remain among the few central banks that won’t tighten policy for the foreseeable future,” Thieliant said.
Tokyo’s Nikkei 225 index dropped 1.8% to 28,545.68, while the Kospi in Seoul recovered from earlier losses to gain 0.2%, at 3,012.78. In Australia, the S&P/ASX 200 edged 0.1% higher to 7,304.00.
Hong Kong’s Hang Seng lost 1% to 23,236.47. The Shanghai Composite index gave up 1% to 3,638.03. Tensions between the U.S. and China were in the spotlight after the U.S. Congress approved legislation barring all imports from China’s Xinjiang region unless businesses can prove they were produced without forced labor.
It was the latest measure intensifying U.S. penalties over China’s alleged abuses of ethnic and religious minorities in the western region, especially Xinjiang’s millions of predominantly Muslim Uyghurs. The Commerce Department also levied new sanctions targeting China’s Academy of Military Medical Sciences and its 11 research institutes that focus on using biotechnology to support the Chinese military.
Thursday’s sell-off on Wall Street took the S&P 500 0.9% lower to 4,668.67, erasing about half of its gains from the day before. The Nasdaq slid 2.5% to 15,180.43, its biggest drop since September. The Dow Jones Industrial Average slipped 0.1% to 35,897.64.
Several big technology companies weighed on the market. Apple slid 3.9% and Microsoft dropped 2.9%.
Small company stocks also took heavy losses. The Russell 2000 index gave up 2% to 2,152.46. All the major indexes are on pace for a weekly loss.
The sell-off followed a rally the day before when the Fed signaled plans to speed up its reduction in monthly bond purchases that have helped maintain interest rates low. The shift in policy sets the stage for the Fed to begin raising rates sometime next year.
Large technology companies often have lofty valuations based on assumptions about their profitability going far into the future. Investors tend to accept those higher valuations more easily when interest rates are extremely low, giving them fewer alternatives for returns. With interest rates poised to rise, investors are rethinking the high valuations they put on tech giants.
Rising numbers of omicron variant coronavirus infections are also casting a shadow as public health experts have begun urging greater precautions and warning of a worsening wave of COVID-19 outbreaks.
The yield on the 10-year Treasury fell to 1.42% from 1.43% late Thursday.
In other trading Friday, U.S. crude oil lost 74 cents to $71.64 per barrel in electronic trading on the New York Mercantile Exchange. It gained $1.31 to $72.38 on Thursday. Brent crude, the basis for international pricing of crude, fell 60 cents to $74.42.
The U.S. dollar weakened to 113.56 Japanese yen from 113.69 yen. The euro rose to $1.1339 from $1.1330.