HONG KONG – Asian markets sank today following the previous day’s healthy run-up, with sentiment jolted by the prospect that US President Joe Biden’s huge stimulus could be watered down and not even be passed for several weeks.
Investors have been on a buying spree since November, when Biden won the presidency and vaccinations began to be authorised, with the usual support also coming from central banks’ loose monetary policy and government spending.
But while the general feeling on trading floors is of optimism about the long-term outlook, confidence is being tested by surging virus infections and deaths, lockdowns and problems in rolling out inoculations.
The biggest driver of the market rally in recent weeks has been hope for Biden’s US$1.9 trillion (RM7.69 trillion) economic rescue plan.
But there is a growing concern that it could be whittled down in congressional negotiations, with Republicans and even some Democrats concerned about its size in the wake of a US$900 billion (RM3.64 trillion) deal passed at the end of last month.
While the S&P 500 and Nasdaq both ended at new record highs on Wall Street, the Dow slipped.
And Asian traders were in a selling mood today, with Hong Kong and Shanghai suffering big losses after the People’s Bank of China tightened liquidity in mainland financial markets.
Seoul shed more than 2% after data showed the South Korean economy suffered its worst year since 1998, when the Asian financial crisis rocked the region.
Singapore, Taipei, Manila and Jakarta also lost more than 1% while there were sizeable losses in Tokyo, Bangkok and Wellington. Sydney was closed for a holiday.
London opened flat and the pound weakened against the dollar and euro after data showed UK unemployment hit a four-year high of 5% at the end of last year. Paris and Frankfurt edged up.
Investors are also keeping tabs on the ongoing earnings season, while the Federal Reserve’s board meeting this week is expected to shed light on its plans for monetary policy in light of the stimulus proposal.
OANDA’s Jeffrey Halley said if central bank boss Jerome Powell’s post-meeting comments are on the dovish side “it will be business as usual, with markets myopically fixated on US stimulus progress”.
He added that a 10% to 15% correction in markets would be welcome owing to the strong rally over recent months, “but global monetary policy means asset price appreciation remains front and centre for 2021”. – AFP, January 26, 2021
