Asia report: Hong Kong leads region higher after Fed hike

Stocks put in another solid performance in Asia on Thursday, with Hong Kong’s main board rocketing 7%, after the US Federal Reserve raised interest rates overnight as expected.

In Japan the Nikkei 225 was up 3.46% at 26,652.89, as the yen strengthened 0.11% on the dollar to last trade at JPY 118.60.

It was a positive day for the benchmark’s major components, with robotics specialist Fanuc up 7.11%, Uniqlo owner Fast Retailing adding 6.92%, and tech investing giant SoftBank Group 5.89% firmer.

The broader Topix index added 2.47% by the end of trading in Tokyo, closing at 1,899.01.

On the mainland, the Shanghai Composite was up 1.4% at 3,215.04, and the smaller, technology-centric Shenzhen Composite added 2.24% to 2,133.01.

South Korea’s Kospi gained 1.33% to 2,694.51, while the Hang Seng Index in Hong Kong surged 7.04% to 21,501.23.

Technology plays led the gains in the special administrative regions, with Alibaba Group up 12.46%, JD.com jumping 15.85%, and Tencent Holdings 6.27% firmer.

Property plays were also in focus after authorities in Beijing said they would support stability in the ailing sector, and confirmed there would be no expansion to property tax tests in 2022.

China Evergrande was 17.83% higher, Country Garden soared 28.41%, and Sunac China was 59.03% higher by the end of the session.

Seoul’s blue-chip technology stocks joined the march higher as well, with Samsung Electronics up 1.14% and SK Hynix adding 6.44%.

Trading in the region was given a boost by a positive session on Wall Street overnight, after the Federal Reserve hiked interest rates for the first time since 2018.

The Fed added 25 basis points to its target funds rate, and also signalled its expectations for six more rate rises as Russia’s invasion of Ukraine and red-hot inflation threaten a cost-of-living crisis stateside.

It also upgraded its inflation forecast to 4.3% for 2022 from a previous 2.6%, and to 2.7% in 2023 from 2.3%, while downgrading GDP growth expectations to 2.8% in 2022 and 2.3% in 2023.

CMC Markets chief market analyst Michael Hewson said the upward adjustment to the inflation forecast, while significant, was still well below the current level of 6.1%.

“Nonetheless the nature of yesterday’s press conference suggests we will see a 50 basis point hike at some point, maybe as soon as May, while there was no mention of balance sheet reduction.

“There was some scepticism that with all the adjustments to growth and inflation forecasts, the Fed appeared convinced that unemployment would remain steady at around 3.5%, even as they tighten policy.”

Hewson noted that the bond market reaction appeared to indicate some scepticism over whether a recession could be avoided, with the five- and 10-year yields converging.

“Powell’s argument on unemployment not increasing as the Fed tightens appears to hinge on the labour market being a tight one, and while there is a case for questioning this reasoning, based on previous experience, the fact remains the US economy still has over 10 million unfilled vacancies.

“You can certainly make an argument that the US economy is probably not as strong as Powell and the US central bank think it is, but how do you make an argument for an increase in the unemployment rate against a backdrop of 10 million vacancies?”

Oil prices returned to growth as the region went to bed, with Brent crude futures last up 5.25% on ICE at $103.17 per barrel, and West Texas Intermediate ahead 5% at $99.79.

In Australia, the S&P/ASX 200 was 1.05% firmer at 7,250.80, while across the Tasman Sea, New Zealand’s S&P/NZX 50 also gainsed 1.05%, to 11,998.96.

Both of the down under dollars were stronger on the greenback, with the Aussie last ahead 0.68% at AUD 1.3622, and the Kiwi advancing 0.25% to NZD 1.4588.