- Asian stock markets are expected to face pressure due to surging US Treasury Yields.
- US bond yields have been fuelled by hawkish Fed prospect.
- Investors keenly await the Trump-Xi meeting later in the day.
Asian stock markets reflect a mixed performance on Thursday ahead of the meeting between United States (US) President Donald Trump and Chinese leader Xi Jinping later in the day.
As of writing, Nikkei 225 is up 1.65% to near 65,900, KOSPI rises 0.9% to near 7,080. Shanghai tumbles 1% to near 3,900, Hang Seng declines 0.75% at around 24,655, and Nifty 50 slumps 0.9% to near 23,220.
According to a Reuters report, the leaders are expected to discuss trade, Artificial Intelligence (AI), technology and Taiwan, while US Treasury Secretary Scott Bessent said Washington and Beijing had agreed to extend their trade truce by two months. Market participants would also pay attention to comments from Chinese leader Xi regarding the supply of rare earths and discussions regarding Middle East energy supply.
Meanwhile, the outlook of Asian markets has come under pressure as US bond yields have extended their rally amid firm expectations that the Federal Reserve (Fed) will continue its monetary-tightening cycle further. 10-year US Treasury Yields have jumped to 5.13%, the highest level seen in 19 years.
Surging US bond yields diminish the appeal of risk-sensitive assets, such as equities and riskier currencies.
The CME FedWatch tool shows that the Fed will hike interest rates in both policy meetings remaining this year.
Asian stocks FAQs
Asia contributes around 70% of global economic growth and hosts several key stock market indices. Among the region’s developed economies, the Japanese Nikkei – which represents 225 companies on the Tokyo stock exchange – and the South Korean Kospi stand out. China has three important indices: the Hong Kong Hang Seng, the Shanghai Composite and the Shenzhen Composite. As a big emerging economy, Indian equities are also catching the attention of investors, who increasingly invest in companies in the Sensex and Nifty indices.
Asia’s main economies are different, and each has specific sectors to pay attention to. Technology companies dominate in indices in Japan, South Korea, and increasingly, China. Financial services are leading stock markets such as Hong Kong or Singapore, considered key hubs for the sector. Manufacturing is also big in China and Japan, with a strong focus on automobile production or electronics. The growing middle class in countries like China and India is also giving more and more prominence to companies focused on retail and e-commerce.
Many different factors drive Asian stock market indices, but the main factor behind their performance is the aggregate results of the component companies revealed in their quarterly and annual earnings reports. The economic fundamentals of each country, as well as their central bank decisions or their government’s fiscal policies, are also important factors. More broadly, political stability, technological progress or the rule of law can also impact equity markets. The performance of US equity indices is also a factor as, more often than not, Asian markets take the lead from Wall Street stocks overnight. Finally, the broader risk sentiment in markets also plays a role as equities are considered a risky investment compared to other investment options such as fixed-income securities.
Investing in equities is risky by itself, but investing in Asian stocks comes along with region-specific risks to be taken into account. Asian countries have a wide range of political systems, from full democracies to dictatorships, so their political stability, transparency, rule of law or corporate governance requirements may diverge considerably. Geopolitical events such as trade disputes or territorial conflicts can lead to volatility in stock markets, as can natural disasters. Moreover, currency fluctuations can also have an impact on the valuation of Asian stock markets. This is particularly true in export-oriented economies, which tend to suffer from a stronger currency and benefit from a weaker one as their products become cheaper abroad.
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.