Chinese and South Korea stock markets tumbled yesterday in the first day of trade after China announced it would raise interest rates to cool runaway economic growth.
Bourses in Hong Kong, Taipei and South Korea saw sell-offs, although Shanghai and Shenzhen regained ground with investors cautious after Friday's decision by the People's Bank of China to raise the one-year benchmark lending and deposit rates by 0.27 percentage points.
The rises peg the lending rate to 6.12 percent and the deposit rate to 2.52 percent.
Analysts said investors were concerned the rate rises would affect the profitability of China-linked companies, especially those sensitive to changes in the cost of borrowing, such as property stocks.
Hong Kong share prices finished the day 1.86 percent lower pulling the benchmark Hang Seng Index down 322.82 points at 17,007.88.
"Investor sentiment was affected by China's sudden rate hike. Local and China property counters saw strong selling pressure," said Castor Pang, strategist at Sun Hung Kai Financial group.
"The sudden rate hike showed that the Chinese government may want to impose more measures to [check] the strong economic growth," Pang added, saying that "such measures would impact different sectors like property, commodity and financials."
Big property and trading conglomerates like Cheung Kong (Holdings) Ltd (
Shares on China's two main boards, in Shanghai and Shenzhen, fell sharply yesterday morning but recovered at the end of day. The Shanghai A-share Index added 3.30 points to 1,683.16 and the Shenzhen A-share Index was up 1.28 points at 413.16.
"Some investors hunted for bargains after the indices had opened sharply lower following the hike in interest rates. Oversold telecom and metal issues were the main targets," said Wang Mingzhi, an analyst at GF Securities.
While the market brushed off the rate hike news by the close, analysts said in the longer term it will dampen economic activity and put downward pressure on corporate earnings.
Shares in Taiwan closed 3.20 percent lower, with sentiment also capped by heightened political concerns. The weighted index closed down 215.16 points at 6,505.92.
South Korea shares were also affected after a four-day rally, closing 0.71 percent lower, with foreign investors selling exporters on concern about China's interest rate hike.
The KOSPI index closed down 9.43 points at 1,321.67.