Hong Kong: Most Asian markets declined Thursday on inflation worries triggered by soaring oil prices, but Japanese shares eked out gains.
Expectations that the US Federal Reserve won’t cut interest rates much more and a sharp drop on Wall Street overnight also weighed on investor sentiment across the region.
Hong Kong’s Hang Seng Index fell 417.17 points, or 1.6%, to 25,043.12, while South Korea’s Kospi slid 0.7% to 1,835.42. China’s main index in Shanghai sank 1.7% to 3,485.63.
Analysts in Hong Kong said they expect more downward pressure on the market in coming days, driven by inflation concerns in the US and uncertainties about policy changes in China following the massive earthquake in Sichuan.
“Investors are worried that interest rates have bottomed out, and instead may soon begin to rise on inflation worries...bringing heavy selling pressure on local property developers,” said Peter Lai, a director at DBS Vickers.
The rate concerns were sparked by comments issued on Wednesday by the Federal Open Market Committee from its last meeting that suggested it may pause before making any more rate moves to avoid sparking inflation.
Higher crude oil prices also damped buying interest on Thursday, analysts said. July crude oil futures on the New York Mercantile Exchange spiked above $135 (Rs5,825) a barrel in Asian electronic trade as traders snapped up contracts in the wake of bullish US oil data overnight.
Oil-sensitive stocks, particularly airlines, were hard hit by the continued rise in oil prices. Cathay Pacific Airways fell 2.2%, and China Eastern Air declined 5.6%.
In Tokyo, oil refiners rose, helping lift the benchmark Nikkei 225 index 52.16 points, or 0.37%, to 13,978.46.
“The market was supported by gains in banking and oil-related stocks in the afternoon session,” said Kazuhiro Takahashi, general manager at Daiwa Securities SMBC Co. Ltd. “But overall sentiment was weak due to concern over inflation,” he said.
On the Chinese mainland, the rise in oil prices prompted worries about lower earnings for refiners and airlines. The benchmark Shanghai Composite Index fell 1.7% to 3,485.6. Even institutional investors have “become short-term-minded” following China’s 12 May earthquake, quickly buying and selling, said Huatai Securities analyst Chen Huiqin.
“Investors are expecting the economy to benefit from the post-earthquake reconstruction work in June or July, but until then, trading is likely to remain choppy, especially under the shadow of surging oil prices,” she said.
Chinese refiners fell on expectations that their costs for imported crude would rise. The sector was also weighed down by the government’s dismissal of rumors that it might end controls that bar refiners from passing on rising crude costs to consumers.