Hong Kong stocks sank to their lowest level in more than a decade on Thursday, as did other Asian markets, after the US Federal Reserve hiked interest rates by 75 basis points and anticipated further rises, fanning fears of a recession.
The Hang Seng Index (HSI) plummeted 2.6%, breaking below 18,000 points before rebounding somewhat. It closed 1.6% down at 18,148, its lowest level since December 2011.
The S&P/ASX 200 index in Australia sank 1.6%, while Japan's Nikkei 225 (N225) and South Korea's Kospi also declined 0.6%. The Shanghai Composite Index (SHCOMP) in China fell 0.3%.
European stocks dipped in early trade as well. The FTSE 100 (UKX) index in London fell approximately 0.3%, while the DAX (DAX) in Germany and the CAC40 (CAC40) in France both down about 0.7%. Stock futures in the United States were slightly moved.
The drops occurred after the Federal Reserve authorized a third straight 75-basis-point boost on Wednesday in an aggressive bid to combat the US economy's white-hot inflation.
The massive increase, which seemed incomprehensible to markets only a few months ago, raises the US Federal Reserve's benchmark lending rate to a new target range of 3%-3.25%. This is the greatest level since the 2008 global financial crisis.
"If you compare this rate rise cycle to past rate hike cycles dating back to 1983, the Fed has never hiked rates this much in such a short period of time," said David Chao, global market strategist, Asia Pacific (ex-Japan), at Invesco.
"With the Fed's 'forceful and quick' rate rises, it is becoming increasingly difficult for the US to escape recession," he continued.
Hong Kong's currency is pegged to the US dollar, and the city's central bank boosted its base rate by 75 basis points on Thursday to preserve that linkage.
Meanwhile, the Bank of Japan maintained its strategy of trying to boost the economy by keeping short-term interest rates at minus 0.1% on Thursday.
The Japanese yen originally plummeted to 145 per US dollar, a new 24-year low, before swiftly reversing on claims of government intervention in the currency market.
A number of other concerns, notably escalating US-China tensions over Taiwan, harmed investor sentiment in the area.
On Tuesday, US Navy and Canadian warships transited the Taiwan Strait, barely two days after President Joe Biden warned the US military would defend Taiwan if China launched an assault of the democratically self-ruled island.
"The geopolitical background, the China slowdown narrative, the possibility for European energy rationing, the strong dollar, and fragile-looking domestic [US] equities and housing markets all point to clear recession risks," ING analysts said in a report on Thursday.
"A more aggressive Federal Reserve rate rise profile and tighter monetary conditions will further exacerbate the threat," they warned.
