Asian stock markets fell on Wednesday as investors awaited the outcome of the Federal Reserve’s policy meeting, where it is widely expected to raise interest rates for the fourth time this year.
Fed to Hike Rates Amid Inflation Concerns
The Fed will announce its decision on interest rates at 2 p.m. ET (1900 GMT), followed by a press conference by Chair Jerome Powell. The Fed is projected to lift its benchmark rate by a quarter percentage point to a range of 2.25% to 2.5%, the highest level since 2008.
The rate hike is seen as a response to the strong U.S. economy and rising inflation, which hit a six-year high of 2.9% in July. However, some analysts have warned that the Fed may be tightening monetary policy too fast, given the signs of slowing global growth and trade tensions.
The Fed is also expected to update its economic projections and its guidance on the future path of interest rates. Investors will be looking for clues on whether the Fed will pause or slow down its rate hikes next year, as some market participants have hoped.
Asian Shares Decline Across the Board
Asian shares followed Wall Street lower on Wednesday, as investors reduced their risk appetite ahead of the Fed decision. The MSCI Asia Pacific Index dropped 0.7% to 149.77, its lowest level since May 2017.
Japan’s Nikkei 225 index fell 0.6% to 21,919.33, as exporters were hurt by a stronger yen. The Japanese currency rose to a one-week high of 112.54 per dollar, as traders sought safe-haven assets.
Australia’s S&P/ASX 200 index slipped 0.2% to 5,580.60, as mining and energy stocks weighed on the market. The Australian dollar fell to a two-month low of 0.7166 per dollar, after a report showed that consumer confidence declined in December.
South Korea’s Kospi index edged down 0.4% to 2,060.12, as technology and auto shares dragged the market lower. Samsung Electronics Co., the world’s largest smartphone maker, fell 1.1%, while Hyundai Motor Co., the country’s biggest carmaker, lost 2%.
Hong Kong’s Hang Seng index dipped 0.1% to 25,865.39, as property and financial stocks underperformed. China’s Shanghai Composite index shed 0.3% to 2,579.48, as investors remained cautious amid the ongoing trade dispute with the U.S.
Outlook for Asian Markets
The outlook for Asian markets remains uncertain, as the Fed’s rate decision and Powell’s comments could trigger volatility in the global financial markets. The Fed’s policy stance will have implications for the U.S. dollar, bond yields, commodity prices and capital flows, which could affect the performance of emerging and developed economies in Asia.
Moreover, Asian markets will also have to contend with other geopolitical and economic risks, such as the Brexit turmoil in Europe, the budget standoff in Italy, the slowdown in China and the trade tensions between Washington and Beijing.
According to analysts at Morgan Stanley (NYSE:MS), Asian equities are likely to remain under pressure in the near term, as earnings growth slows down and valuations remain unattractive. They expect Asian earnings per share to grow by only 3% in 2023, compared with 14% in 2022.
However, they also see some potential catalysts for a rebound in Asian markets next year, such as a possible resolution of the U.S.-China trade conflict, a moderation of the Fed’s tightening cycle and a stabilization of China’s economy.