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Asian shares fell across the board on Monday as investors updated their projections for “higher for longer” interest rates following strong US economic data last week.
Shares in Australia, Hong Kong, mainland China, India and South Korea fell on Monday morning after Friday’s US payrolls report showed 256,000 jobs were added in December, beating consensus and prompting traders to cut expectations for a cut rate by the Federal Reserve.
The dollar index, which tracks it against the yen, pound and other major currencies, hit its highest level in more than two years on Friday. A stronger U.S. economy could slow the Fed’s pace of rate cuts, drawing investment away from other markets, including Asia.
“People are surprised by the economic strength in the US,” said Jason Lui, head of Asia-Pacific equity and derivatives strategy at BNP Paribas. “With interest rates so high in the US, you’re going to have an outflow of liquidity in Asia, and capital will either flow to the US or stay there.”
Australia’s S&P/ASX 200 index fell 1.3 percent, while South Korea’s Kospi fell 1.1 percent. India’s Sensex index fell 0.8 percent. The Japanese market was closed on Monday.
“Emerging market stocks have traditionally performed better when US interest rates are lower,” said Sunil Tirumalai, head of Asia equity strategy at UBS. “In fact, they are more sensitive to US rates than US stocks themselves.”
Hong Kong’s Hang Seng retreated 1.4 percent, while China’s CSI 300 fell 0.5 percent.
“The mainland coast [Chinese] the market is still more resilient to external noise,” said Lui, who said mainland investors were still shifting funds from low-yielding savings accounts to the stock market.
Despite this, shares in mainland China have fallen steadily by 17 percent since a peak on Oct. 8 last year, as hopes of a bazooka-style stimulus from Beijing faded and worries about the economic impact of Donald Trump’s second term hit the market.
“Some of the stimulus measures were a positive surprise,” said Tirumalai, who acknowledged that China was still in a “bear market.” “For example, the extension of the exchange scheme to a wider range of consumer goods came earlier than we thought.”
Oil prices rose to their highest level in four months after the US announcement new sanctions on Russian oil on Friday.
Brent crude oil prices, the international benchmark, rose 1.6 percent to $81 a barrel, while the U.S. West Texas Intermediate index rose 1.7 percent to $77.90 a barrel.
