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Hong Kong (Reuters): Asian stocks consolidated recent gains on Wednesday before a U.S. central bank policy meeting that could signal how much monetary tightening to expect during the remainder of the year, with an immediate rate hike fully priced in by markets.
Though recent data, particularly out of China, has fuelled a rally in Asian equities since the start of the year, investors are expecting more headwinds for emerging markets due to an increasingly hawkish Fed.
The positive sentiment towards emerging markets is not sustainable as the interest rate differential advantage in Asia’s favour is likely to reduce in the coming months, said Frances Cheung, head of rates strategy for Asia ex-Japan at Societe Generale in Hong Kong.
Having posted its second-biggest daily gain this year in the previous session, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1% near the day’s highs in cautious trading.
Japan’s benchmark Nikkei average was down 0.14% while stocks in mainland China and Korea declined 0.13 and 0.2% respectively.
Index futures in Europe pointed towards a cautious start.
Asian share markets have had a good start to the week thanks to positive news out of the region’s two economic powerhouses, China and India.
Strong data out of China this week have sparked a fresh rally in Hong Kong stocks, while Indian shares climbed to a record high on Tuesday as investors regarded Prime Minister Narendra Modi’s landslide victory in the northern state of Uttar Pradesh as an endorsement for his economic reforms.
While recent economic Chinese data has been supportive, Premier Li said at a press conference that China’s economy faces domestic and external risks this year, but added the country has many policy tools to cope with them.
China’s economy had pretty good performance in January and February. March data will be crucial as investors are anxious for any hint on whether the recovery is sustainable, said Linus Yip, strategist at First Shanghai Securities Ltd.
A worrying drop in global oil prices, however, has cast doubt on how much Asian policymakers are likely to raise interest rates this year to maintain their premium over U.S. rates.
Brent crude LCOc1 has lost more than 8 percent in the past five trading sessions despite a 1.2% bounce on Wednesday.
U.S. oil prices rose after industry data showed a surprise drawdown in U.S. crude stockpiles. West Texas Intermediate crude was up 1.4% at $48.40 a barrel.
Policy decisions at the Bank of England and the Japanese central bank alongside a Dutch election vote within the next 36 hours were further reasons for investors’ cautious stance.
