HONG KONG: Asian markets suffered further losses Thursday, hit by mounting fears about the path of US interest rate hikes and the increasingly fraught relations between China and the United States.
Tech firms were among the worst hit following a news report that said Beijing had used microchips as part of a drive to steal technology secrets.
Traders tracked a sell-off on Wall Street, where all three main indexes were hit by another increase in the 10-year US Treasury yield to a fresh seven-year high.
With Treasuries the key gauge for Federal Reserve policymakers when deciding interest rate hikes, markets are growing more concerned that the cost of borrowing will rise more than previously expected and in turn hit the economy.
This week also saw Fed chief Jerome Powell deliver a hawkish assessment of rates, which added fuel to the fire for many who are predicting a quick pace of hikes.
The prospect of borrowing costing more, slamming the door shut on a decade of ultra cheap cash, has sent investors running for the hills, with indebted emerging market economies in the spotlight as dollar-denominated repayments become harder.
“This week’s Fed speak does paint an exceedingly rosy picture of the US economy, the prospect of higher inflation and the Fed responding with even quicker and steeper rate hikes,” said Stephen Innes, head of Asia-Pacific trading at OANDA.
“Historically, faster-than-expected Fed rate hikes have posed a considerable negative for equity markets.”
Eyes are now on the release later Friday of US jobs data, with a strong reading expected to push Treasury yields even higher.
While the trade war between Beijing and Washington has taken a back seat for now, fears over rates are driving selling.
Tech firms tank
Stocks in Hong Kong, where monetary policy is linked to the Fed because of the city’s dollar peg, fell 0.2% Friday, having already lost more than 4% this week.
Chinese PC maker Lenovo plunged more than 15% and telecoms equipment maker ZTE lost 11% after Bloomberg reported that Beijing used microchips inserted in US computer goods to steal technology secrets.
It said the chips were used on equipment made for Amazon and Apple, and possibly for other companies and government agencies. It claimed a unit of the People’s Liberation Army was involved the operation.
“Electronics produced in China may be viewed unsafe due to this news and tech shares are falling in general because of that,” Ray K W Kwok, an analyst at CGS-CIMB Securities Hong Kong, told Bloomberg News.
Other tech firms were also sharply lower. AAC Technologies a Hong Kong firm listed in the city, sank more than 2%, while in Taipei HTC lost 1.6%, Realtek was more than 8.3% off and Delta Electronics retreated more than 4%.
Tokyo ended 0.8 percent lower, Singapore shed 0.7%, Seoul was 0.3% off and Taipei sank 1.9%.
New Zealand, Mumbai and Jakarta were also well down.
The chip report came as markets grow concerned about US-China relations, which have taken a hefty knock from tit-for-tat tariffs that have fanned worries of an all-out trade war between the world’s top two economies.
On Thursday Vice President Mike Pence added to the uncertainty by accusing Beijing of military aggression, commercial theft and rising human rights violations, while saying it was bent on interfering in upcoming US elections.
“There can be no doubt — China is meddling in America’s democracy,” he warned.
China called the claims “ridiculous”, groundless and slanderous.
The chip story “plays heavily into the view that the Sino-US trade stoush is not just about Trump’s infatuation with the size of the US-China bilateral trade balance”, said Ray Attrill, head of foreign exchange strategy at the National Australia Bank.
“But is a much more geopolitical affair as well as being related to China’s desire to dominate the technology sphere. It means that an early resolution of Sino-US trade issued is not a realistic prospect.”
On oil markets both main contracts edged up after seeing sharp losses Thursday, having soared to fresh four-year highs on expectations next month’s Iran sanctions will hit global output levels.
In early European trade London was flat, while Paris and Frankfurt each fell 0.1%.
Key figures around 0710 GMT
Tokyo – Nikkei 225: DOWN 0.8% at 23,783.72 (close)
Hong Kong – Hang Seng: DOWN 0.2% at 26,572.57 (close)
Shanghai – Composite: Closed for a public holiday
London – FTSE 100: FLAT at 7,416.15
Euro/dollar: DOWN at $1.1504 from $1.1515 at 2100 GMT
Pound/dollar: UP at $1.3045 from $1.3022
Dollar/yen: DOWN at 113.88 from 113.92 yen
Oil – West Texas Intermediate: UP 54 cents at US$74.87 per barrel
Oil – Brent Crude: DOWN UP 49 cents at US$85.07 per barrel
New York – Dow Jones: DOWN 0.8% at 26,627.48 (close)