Asian markets closed lower on Thursday as they were pulled down by renewed worries about the United States government's mounting fiscal deficit and a sharp increase in yields on government bonds. These events set off a sense of caution in global financial markets and encouraged investors in Asia to retreat from stocks.
The wider MSCI Asia ex-Japan index declined 0.9%, the steepest single-day decline in recent times. Key indices from the region, like India's Nifty 50 and Sensex, Korea's KOSPI, Taiwan's TAIEX, and Hong Kong's Hang Seng, all closed in the red for the day. Japan's Nikkei, which has recorded impressive gains this month so far, also closed in the negative.
India's benchmark indices were also among the losers, with Nifty 50 going down by 0.82% and the Sensex down 0.79%. In the same vein, Hong Kong's Hang Seng Index shed over 280 points as a decline in consumer and tech stocks weighed on the market. The selling pressure also hit South Korea and Taiwan as well as sectors relying on foreign demand.
The sale came primarily on the heels of what has transpired in the United States with a proposed spending and taxation bill set to put about $3.8 trillion on the country's debt tally already at over $36 trillion. This has unsettled investors after a recent credit rating downgrade by a top rating agency. Consequently, long-term U.S. bond yields jumped to their highest level in more than 18 months.
Higher yields tend to make U.S. bonds a preferred investment for investors who desire stable returns, and thus require capital outflows from emerging and developing economies like Asia, whose stocks are seen as carrying a higher risk. The higher yields also make the U.S. dollar stronger and put Asian currencies under more pressure, hiking import payments and foreign debt repayment costs.
Technology stocks suffered the most in Asia. More and more tech companies depend on revenues from the U.S. market, and speculation about slowdowns in corporate expenditure as economic uncertainty rises has prompted worries over earnings in the future. In India, IT stocks declined by more than 1.3%, and the semiconductor-weighted index of South Korea also dipped significantly.
Consumer-facing companies came under added pressure as urban demand weakened and quarterly earnings disappointed. This trend was seen both in China and India, as a number of FMCG (fast-moving consumer goods) businesses reported disappointing sales numbers.
This week, even after a momentary sense of hope last week driven by foreign buying, a peace agreement between Pakistan and India, and de-escalation between the U.S. and China, Asian stocks weakened once again. India's Nifty, for instance, has declined by 1.6% in the last four trading sessions.
Experts opine that Asian market conditions remain uncertain. Although some think domestic institutional funds and supportive fundamentals can provide a cushion to select stocks, others remain guarded as a result of headwinds from global markets. The disparity between bond returns and equity returns is also lessening the attractiveness of stocks over the short term.
The IPO market remains resilient in some Asian economies, having seen a number of successful listings over the last few weeks. Market volatility and a softening global economic outlook could affect investor demand in the future, however.
