Fears of Fed’s Hawkish Sentiments Are Haunting Asian Markets

Chinese chipmakers led drops in Asian markets on Monday due to fresh US trade restrictions, while concerns about more hawkish Federal Reserve actions generally dampened confidence.

The Shanghai Composite index fell 0.4%, while the blue-chip Shanghai Shenzhen CSI 300 index fell 0.9%. The White House put export limits, shutting out Chinese businesses from certain semiconductor chips built with US equipment. As a result, chipmaking stocks like Chengdu Xuguang Electronics Co Ltd (SS: 600353) and Anji Microelectronics Tech Co Ltd (SS: 688019) plunged 20%. The move also shook Hong Kong equities, with the Hang Seng index dropping close to 3%. Alibaba Group Holding Ltd (HK: 9988), Tencent Holdings Ltd (HK: 0700), and Baidu (NASDAQ: BIDU) Inc (HK: 9888) all had 2% to 4% declines.

Should We Expect More Economic Backfalls?

The US action has raised the prospect of worsening trade relations between the world’s two largest economies, with potentially more serious economic consequences if China retaliates.

Data released over the weekend revealed that China’s services sector surprisingly contracted in Sept. amidst ongoing COVID-related disruptions, further contributing to the worsening sentiment toward the country. A recent rise in COVID-19 cases has also sparked concerns about more lockdowns. The 20th Congress of the Chinese Communist Party, which should lay out governmental plans for the following five years, is another topic of discussion this week. Though trade volumes were low on Monday owing to holidays in Japan and South Korea, the larger Asian stock indexes experienced a steep decline.

The S&P/ASX 200 index in Australia dropped 1.4%, with miners incurring significant losses due to the possibility of declining Chinese demand. Southeast Asia’s poorest performer was the Philippines, when the PSEi Composite index fell 1.1%.