Asia-Pacific stocks have cooled sharply today due to fears over rising rates.
Over the weekend, China left its benchmark lending rate unchanged, but fears of monetary tightening being formalized are hurting stocks in China and the region.
Mainland Chinese stocks led losses in the region, and TCBOE Volatility Index is up over 10% on Monday earlier.
The SZSE Component Index closed at 15,336.95, down 3.07%, while SSE Composite Index closed 1.45% lower to 3,642.44. In Hong Kong, the Hang Seng index fell1.06%, closing at 30,319.83.
The one-year loan prime rate in China is unchanged at 3.85%, which meets the expectations of traders and analysts. The five-year LPR was kept steady at 4.65%. China left its benchmark lending rate for corporate and household loans unchanged for a 10th straight month. A tighter policy might be adopted in the future.
“Monetary conditions have tightened in practice since the start of the year. We expect the PBOC to formalize the shift with policy rate increases in the next few months,” said analysts at Capital Economics.
High valuations in addition to fears of policy tightening are worrying investors. After touching record highs last week, China’s blue-chip index suffered the biggest daily drop on Monday in 7 months.
Last week, the markets were positive after the Lunar New Year vacation. Hang Seng TECH Index rose 2.34% to 10,945. hitting a record high on the first New Year’s trading day. Alibaba (HKEX:09988), Tencent (HKEX: 00700), and Meituan (HKEX: 03690) suffered a low open but gained in the afternoon, rising 1%, 2%, and 3%, respectively.
"We believe that the recent developments during the Spring Festival have increased the possibility of tightening monetary policy in the coming months," said Zhiwei Zhang, the chief economist of Insurance Bank Asset Management.