Asian markets on Friday were mixed as fears that the global recovery would fire inflation continued to niggle investor sentiment as they faced up to the fact that interest rates would not be kept at record lows forever.
The rollout of vaccines, falling infection rates and the prospect of another mammoth US stimulus have sent equity markets to all-time or multiyear highs in the past few weeks, with focus firmly on the long-term outlook.
The rally has been underpinned by vast financial support from central banks around the world, particularly the US Federal Reserve, as well as huge government spending.
However, while there is light at the end of the tunnel and people look forward to the easing of social restrictions and a return to some level of normality, the recovery has its downsides.
Focus has turned from the optimistic view of an economy back on track to the expected ramp-up in prices that is likely to force central bankers to tighten ultra-loose monetary policies, including hiking interest rates. US Treasury yields have rallied to their highest level in about a year as inflation expectations surge.
“With large-scale stimulus amid recovery from the COVID-19 shock, investor attention has focused on potential impacts from rising rates and inflation,” AxiCorp Financial Services Pty chief global markets strategist Stephen Innes said. “Stocks are at the brink of moving from the sweet zone into the danger zone as Fed rate hikes start nudging towards 2022 and the taper tantrum drum keeps beating in the distance.”
“For now, the Fed has been able to keep the taper genie in the bottle. Still, in a world quick to normalize due to the vaccine with additional fiscal stimulus providing rocket fuel to the inflationary fire, higher rates are on the verge of becoming a consensus view,” he said.
With much of the equity rally fired by expectations that borrowing costs would be kept low for the foreseeable future, markets are beginning to wobble, with unease about frothy valuations adding to the selling pressure. Several observers have warned a steep, but necessary, correction is possibly on the way.
In Taipei on Friday, the TAIEX ended down 83.13 points, or 0.51 percent, at 16,341.38 on turnover of NT$346.820 billion (US$12.24 billion). It was up 3.41 percent for the week.
In Hong Kong, the Hang Seng rose for a third week, ending 0.16 percent firmer at 30,644.73. It increased 1.56 percent from a week earlier
The Shanghai Composite Index rose 0.57 percent to 3,696.17, with a weekly gain of 1.12 percent.
In South Korea, the KOSPI gained 0.68 percent to 3,107.62, rising 0.23 percent for the week.
Japan’s TOPIX dropped 0.67 percent to 1,928.95, and declined 0.25 percent from a week earlier. The Nikkei 225 also lost ground, dropping 0.72 percent to 30,017.92, but posted a weekly gain of 1.69 percent.
Australia’s S&P ASX 200 declined 1.34 percent to 6,793.8, losing 0.19 percent from a week earlier.
Additional reporting by staff writer
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