International equities fell on Friday, following declines in US indices, as a bond sale helped to curb investors’ appetite for high-value stocks.
However, US Treasury bills rose in price, recovering some of the losses from the previous session, and futures suggested that New York stocks could stabilize or gain a little in Friday’s trading.
Investors said the market is reevaluating prospects for interest rate hikes by the U.S. Federal Reserve, despite President Jerome Powell’s assurances that the central bank will not raise rates anytime soon.
“What has happened in recent weeks is that markets have had to disapprove of Federal Reserve rate hikes expectations,” said Dwyfor Evans, head of macro strategy for the Asia-Pacific region at State Street Global Markets in Hong Kong.
He said the rise in bond yields would have side effects in areas like corporate loans and mortgage rates. “That’s why stocks will be under pressure here, because rising earnings will have some impact on the real [economy] and earnings are expected to decline, ”said Evans.
Early Friday afternoon in Hong Kong, the main benchmarks there and in Japan fell more than 2%, as did China’s CSI 300 index, which includes major stocks listed in Shanghai or Shenzhen. South Korea’s Kospi Composite fell more than 3%.
In Asia, as in the United States, some of the biggest declines occurred in high-tech stocks. SoftBank Group,
Samsung Electronics and Taiwan Semiconductor Manufacturing Co.
all fell more than 3%, while Chinese food delivery giant Meituan fell 5.9%.
Higher bond yields suggest that the US economy is returning to normal, which should bode well for corporate earnings. But they also improve the relative appeal of bonds compared to stocks and can make investors reevaluate how much they now have to pay for expected future earnings – a particular problem for fast-growing technology stocks.
“Considering that the market has already recovered in the past 10 months, you are seeing great profit making,” said Ken Wong, portfolio manager at Eastspring Investments. Wong said rising borrowing costs are already leading some market participants to undo long positions using leverage, while expensive valuations are also feeding caution.
On Thursday, the MSCI AC World index traded at a price of 20 times the expected profit, according to data from Refinitiv, a premium of 37% over the average over the past 10 years.
On Thursday, the S&P 500 fell 2.4% and the Nasdaq fell 3.5%, with the yield on the 10-year Treasury bill rising to a one-year high above 1.5%. Bond yields move inversely to prices.
But futures suggested that the liquidation of the shares may not extend much further in the US markets on Friday, with those on the S&P 500 falling 0.1% and those on the Nasdaq-100 falling 0.5%.
In the Asian market, the 10-year Treasury yield fell 0.017 percentage points to 1.498%, according to Tradeweb.
Some regional bond markets followed the U.S. slump on Thursday, with Australian benchmark yields rising to 1.87%, the highest since 2019.
In Japan, 10-year earnings also reached a multi-year high of 0.16%. Since 2016, the Bank of Japan has maintained 10-year rates at around zero under its policy of controlling the yield curve, although in recent years it has allowed rates to exceed or decrease by up to 0.2 percentage points.
Write to Xie Yu at [email protected]
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