BENGALURU: Asian equities plunged to multi-year lows on Monday as investors rushed out of risky assets and into safe-haven bonds on fears the Federal Reserve’s protracted fight against inflation may have tipped the United States into a recession.
Bleak US economic data last week triggered worries about whether the US Federal Reserve will be able to engineer a soft landing for the world’s largest economy, and if more aggressive rate cuts would be needed to stave off a slowdown.
Coupled with rising tensions in the Middle East and worries over tech earnings, the ongoing sell-off in equities amplified with tech-heavy benchmarks like Taiwan and South Korea plunging around 8% each.
Taiwan stocks are now down around 18% since their all-time high in mid-July but were still up more than 11% since the start of the year. South Korean shares, which ended last week marginally in the black over the year, are now 6% in the red territory.
“What we are looking at now is a situation where the market is viewing what’s going on in the US macro economy as ticking the recession box,” Robert Carnell, regional head of research, Asia-Pacific at ING, said.
“It’s all flicked from being inflation falling fast enough and the Fed easing in September, to the economy is perhaps hurtling off the rails and the Fed not going to be able to do enough to stop that from getting worse.”
MSCI’s broadest gauge of Asia-Pacific equities outside of Japan fell 3% to mark its worst day since mid-June 2022.
An index of Asian emerging markets equities, in which Taiwan holds nearly a quarter of weightage, lost 3% to hit an over three-month low.
Yields on the regional bonds eased sharply, with those on the 10-year notes in India falling to its lowest level since March 2022. Yields in Indonesia also slipped to their lowest since mid-May.
In Southeast Asia, the Singaporean benchmark declined as much as 3.6% to mark its worst day in more than two years, while stocks in Indonesia, Thailand and the Philippines lost between 2% and 3%.
Currencies in the region leapt higher as the dollar weakened on rising bets of deeper rate cuts by the Fed.
The Malaysian ringgit soared 2.3% to its highest since late April last year, marking its best day since January 2016, while the usually tepid Singapore dollar jumped 0.4% to trade at its highest level this year so far.
Regarding the ringgit, analysts at Maybank wrote “there is more positive idiosyncratic optimism towards the MYR amid the government reforms, better than expected growth and more foreign investor interest”.
The Indonesian rupiah advanced 0.4% to a nearly three-week high while the stocks shed 2%, largely unchanged from earlier in the day after data showed annual economic growth held just above 5% in the June quarter.
Elsewhere, the Philippine peso and Thai baht added around 0.4% each, while the Indian rupee was slightly lower. China’s yuan jumped as much as 0.8% to highest level since the start of the year.
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