Asian stocks fell, with the regional benchmark index poised for its lowest level in 10 weeks, amid concern over turbulence in the credit markets as the Federal Reserve prepares to raise U.S. interest rates.
The MSCI Asia Pacific Index fell 0.6 percent to 127.30 as of 4:01 p.m. in Hong Kong, heading for the lowest close since Oct. 2. Raw material producers led declines, overshadowing the first gain in 10 days for energy companies after oil futures rallied 1.9 percent on Monday. Equities in Hong Kong slid for a ninth straight day, the longest losing streak since 1984.
Commodities are at risk of extending declines as China’s slowdown hurts demand and the world’s largest user shifts its economic model away from raw materials, according to Stephen Roach, former non-executive chairman for Morgan Stanley in Asia.
A sense of unease prevails in global financial markets as the Fed starts its two-day policy meeting on Tuesday, with traders pricing in 76 percent odds that rates will be raised for the first time since 2006, ending the era of near-zero borrowing costs. Tightening policy would solidify the Fed’s divergence from central banks in Europe and Japan.
The prospect of more expensive cash in the U.S. and a deepening rout on commodities markets have helped erase $ 2.5 trillion from the value of global equities since Dec. 1. Bond market anxiety also has caught the notice of equity investors after Third Avenue Management froze redemptions at a high-yield mutual fund last week. Prices on U.S. high-yield bonds kept sinking Monday as London-based Lucidus Capital Partners became the latest fund to liquidate holdings as investors demanded their money back.