Hong Kong stocks slip as developers suffer while most Asian markets gain after Fed tightens policy by most since 1994

  • Hang Seng Index weakens in early trading following the biggest rate hike in the US since 1994, while the HKMA follows with a similar increase in base rate
  • Most Hong Kong developers decline in early trading as higher borrowing costs seen weakening property purchases

Hong Kong stocks weakened as developers slipped on rate outlook after the Federal Reserve raised its key rate by the most since 1994 to contain inflation. Most Asian markets advanced after officials said outsize hikes would not be common in future meetings.

The Hang Seng Index dropped 0.6 per cent to 21,192.42 at 11am local time, after earlier logging as much as 1.1 per cent gain. The Tech Index fell 1.1 per cent, while the Shanghai Composite Index was little changed. Major Asian gauges added 0.6 to 1.4 per cent, led by a rally Japanese stocks

An index tracking property developers tumbled 1.3 per cent on concerns higher borrowing costs will crimp home purchases. New World Development retreated 0.9 per cent to HK$28.50 while Henderson Land lost 1.5 per cent to HK$28.95. Sun Hung Kai Properties declined 0.7 per cent to HK$91.30.

Declines were limited as some Chinese tech leaders advanced. Alibaba Group Holding, the owner of this newspaper, strengthened 0.4 per cent to HK$106 while JD com added 1.7 per cent to HK$254.60 and Sunny Optical added 3.4 per cent to HK$120.90.

US policymakers raised its target range for the federal funds rate by a quarter point to 1.5 per cent to 1.75 per cent, after consumer prices jumped by the most in four decades last month. While the Fed may repeat the act in the July meeting, Chair Jerome Powell told reporters “I do not expect moves of this size to be common.”

“The tightening of financial conditions, and maintaining it for a prolonged period, will end up killing the economic growth cycle,” said Ray Sharma-Ong, investment Director for multi-asset solutions at abrdn, a UK asset manager. “We should not rule out the possibility of a 100-basis-point hike in future meetings.”

The Hong Kong Monetary Authority (HKMA) responded by raising its base rate by 75 basis points to 2 per cent on Thursday, a lockstep move required under the city’s linked exchange rate system to preserve the local currency peg to the dollar. Financial Secretary Paul Chan said higher US rates will stoke capital outflow from the city.

Chinese stocks retreated after withstanding a sell-off earlier this week as global equities slumped into bear territory. About US$485 billion of market value has been added since the mid-March plunge, as traders bet on policy stimulus from Beijing to revive the economy ravaged by Covid-19 lockdowns.

Economic data for May generally outperformed market expectations, signalling the effects of policy easing before and during the citywide lockdown in Shanghai and other mainland cities over the past three months.

Author: Cheryl Heng, SCMP

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