Asian shares follow Wall Street rally after Fed raises rates

Chinese stocks rallied after Beijing pledged it would take measures to support the economy and shares in the rest of the region broadly followed Wall Street higher after the US Federal Reserve raised interest rates for the first time since 2018.

Hong Kong’s Hang Seng index jumped almost 6 per cent on Thursday, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks rose 2.5 per cent. Those gains took the benchmarks 15 and 7 per cent higher, respectively, after China moved to stem double-digit falls earlier in the week, sparked by concerns over the country’s growth outlook.

Elsewhere in the region, Japan’s Topix rose 2.5 per cent while South Korea’s Kospi rose 1.4 per cent. Futures tipped the Euro Stoxx 50 to rise 0.1 per cent while the S&P 500 was set to edge down 0.1 per cent at the open.

The rally in Chinese shares marked the second day of strong gains after China’s Financial Stability and Development Committee promised “substantial measures” to shore up growth and flagged other supportive actions.

“Policymakers will likely walk the walk,” said Xiangrong Yu, chief China economist at Citigroup. Yu pointed to statements from a swath of top institutions including the People’s Bank of China and the country’s banking and insurance regulator, all of which had pledged to carry out the new measures.

But Yu added there were still “significant growth headwinds”, including signs of weakness from China’s property market and the current surge of Covid-19 cases that threatens to force authorities into imposing widespread lockdowns that could disrupt economic growth.

The gains in Asia on Thursday came on the heels of a rally on Wall Street, where the S&P 500 closed more than 2 per cent higher and the tech-focused Nasdaq Composite finished up almost 4 per cent after the Fed raised its main interest rate by a quarter of a percentage point.

“The increase in the number of rate hikes is a clear indication that the Fed has regained its inflation fighting mojo and wants to maintain its credibility in the face of inflationary pressures,” said Kerry Craig, global market strategist at JPMorgan Asset Management.

“For now, the outlook for the US economy is one of resilience rather than recession and is capable of absorbing the higher interest rates.”

Global stocks have also been bolstered by reports that Ukraine and Russia were making “significant progress” in negotiations for a ceasefire and possible Russian withdrawal.

In sovereign bond markets, yields were lower after initially jumping in response to the Fed’s move. Yields on the 10-year US Treasuries fell 0.04 percentage points to 2.14 after briefly touching a three-year high during Wednesday’s session.