“We were certainly surprised by the Fed move,” said Tim Condon, head of research for Asia at ING.
Overnight, the Federal Reserve raised the federal-funds rate by a quarter of a percentage point to between 0.50% and 0.75%, and said it expected to raise short-term rates next year by another 0.75 percentage points, spread over three rate increases.
Markets had expected a 0.50 percentage point increase in 2017 over two rate rises.
Rising U.S. rates increase funding costs for Asian companies in dollars, and it pulls money from regional markets to the States.
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Hong Kong’s Hang Seng index HSI, -1.77% ended down 1.8%, with property stocks leading declines.
The Hong Kong dollar is pegged to its U.S. counterpart, which means Hong Kong rates rise in sync with those of the U.S. Higher rates make Hong Kong mortgages more expensive, deterring home sales.
On Thursday, the Hong Kong Monetary Authority raised its base rate by 0.25 percentage point to 1.0%, matching the overnight interest-rate increase by the Fed.
The Hang Seng Property Index slumped 2.6%, making it the worst performer among the Hang Seng’s main subindexes. Property major Wharf (Holdings) 0004, -2.57% fell 2.6%, with New World Development 0017, -2.80% down 2.8%.
Citi said in a note the Fed rate rise “should trigger the start of a Hong Kong home price downtrend.”
Traders’ concerns about a selloff in China’s onshore bond market hit the share prices of Chinese firms listed in Hong Kong, said Bill Bowler, Asia equities sales trader at Forsyth Barr Asia. “There is a range of speculation about bond-market stress, so it’s hitting banks and insurers particularly hard.”
China’s 10-year and five-year government-bond futures initially traded down Thursday by the daily maximum limit of 2% and 1.2%, respectively. The 10-year instrument is down 1.8%, and the five-year is down 1.2%.
Becky Liu, a rate strategist at Standard Chartered Bank, blamed the sell-off on the Fed’s rate hike and rising U.S. Treasury yields.
Currency moves post-FedThe Fed’s aggressiveness sent the U.S. Dollar Index DXY, +0.14% to 13-year highs, with the index 0.7% higher in Asian trade. The stronger dollar weighed on Asian currencies, with the Indonesian rupiah IDRUSD, +0.23144711% down 0.7% and the Malaysian ringgit MYRUSD, -0.5035% off 0.4%.
China set the yuan CNYUSD, -0.3291% 0.38% weaker against the U.S. dollar Thursday. The yuan traded on the mainland was last down 0.5%, with the more freely traded offshore yuan down 0.2%.
The only beneficiary of the stronger dollar was Japan, as a weak yen makes the country’s exports more competitive.
The U.S. dollar USDJPY, +0.72% gained 0.6% against the yen, triggering a 1.4% share-price rise for Nissan Motor 7201, +1.40% and Honda Motor 7267, +1.41% . The weaker yen pushed up the benchmark Nikkei Stock Average NIK, +0.10% by 0.1% after it rose as much as 1% in morning trade.
Japanese financial stocks gained, with insurer T&D Holdings rising 2.3% and Dai-ichi Life 8750, +0.99% adding 1.0%. Hiroyuki Ito, portfolio manager for Japanese equities at Fidelity International, said rising yields on government bonds pushed up the share prices on Japan financial firms.
“The initial reaction is a buy, but the longer-term outlook isn’t clear,” said Hideyuki Ishiguro, senior strategist at Daiwa Securities, referring to Japan equities broadly. “We’d have to think about the adverse effects of rate increases, such as possible capital outflows from emerging economies.”