ASIAN stocks slid yesterday led by losses on Wall Street, amid anxiety over looming interest rate hikes and a global bond rout.
About US$2 trillion (S$2.6 trillion) has been wiped off the value of global equities and bonds since the start of last week, sparked by an oil price uptick and nascent signs of a pickup in Europe.
This has lifted the cost of borrowing in the euro zone, as governments have to pay higher returns on bonds, for instance.
Weak United States economic indicators added to uncertainty on when the Federal Reserve might start hiking interest rates. Data on Wednesday showed tepid job gains and a second straight quarterly productivity dip.
US stocks ended weaker on Wednesday after Fed chair Janet Yellen warned that high share valuations could pose dangers.
The Dow Jones Industrial Average fell 0.48 per cent, as the S&P 500 slid 0.45 per cent. The Dow is up just 0.11 per cent this year, and the S&P is up 1.03 per cent.
In Asia, Japan’s Nikkei stock index fell 1.22 per cent while Hong Kong’s Hang Seng slid 1.27 per cent. Singapore’s Straits Times Index fell 27.01 points, or 0.78 per cent, to close at 3,432.78. It is up 1.85 per cent so far this year.
The sell-down follows a global bond rout that began with a surge in euro zone bond yields amid improving economic indicators.
Retail sales, lending and business sentiment are all recovering in the euro zone, with the manufacturing purchasing managers’ index now higher than in the US for the first time since early last year, said UBS head of Asia-Pacific fixed income Timothy Tay.
In the US, a sell-off in Treasury bonds was sparked by concern over a better-than-expected labour market and rising wages, which could pressure bond prices, said Mr Neel Gopalakrishnan, emerging markets bond analyst at Credit Suisse Private Banking and Wealth Management.
With a recent uptick in oil prices, inflation expectations are building up, said DBS Bank’s interest rate economist Eugene Leow.
The market also remains wary of an eventual hike in US interest rates. “As rate hikes get priced into the US government yield curve, upward pressure will be seen on global bonds yields,” he added.
Mr Tay said the Fed hike “is still very much dependent on the outcome of economic data over the next quarter”.
Singapore interest rates are expected to rise in line with those in the US and have started to go up.
This may dampen the pace of new Singdollar corporate bond issues, said Mr Nick Wong, credit research analyst at OCBC Bank.
Still, the corporate bond market has remained resilient in the face of increased rates, he said.