SINGAPORE- Asian shares stumbled to a two-month low on Thursday, and the US dollar rose as the impasse in negotiations to raise the US debt ceiling undermined risky assets on worries about the hit to the global economy if the US government defaults.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.84 percent to 503.93, the lowest since March 21, and was on track for second straight month of losses.
China shares fell 0.53 percent while Hong Kong’s Hang Seng index tumbled 2 percent to their weakest in 2023. The drop in these two markets weighed on MSCI’s Asia ex-Japan index, whose top 10 constituents include Tencent Holdings Alibaba Group Holding AIA Group and Meituan.
Tokyo’s Nikkei remained an outlier in the region and was up 0.5 percent.
Negotiators for Democratic President Joe Biden and top congressional Republican Kevin McCarthy held what both sides called productive talks on Wednesday as they race to reach a deal to raise the debt ceiling.
But with no resolution in sight traders remained wary of a possible and catastrophic default with US Treasury Secretary Janet Yellen maintaining early June as a debt ceiling default deadline.
“There’s a beginning of a sense that maybe this time is a little bit different,” said Rob Carnell, ING’s regional head of research, Asia-Pacific.
“Despite the comments that progress keeps being made, you just wonder, McCarthy gets a deal (and) whether even his own party will support it,” he said. “So that’s a concern.”
Credit ratings agency Fitch put the United States on watch for a possible downgrade late on Wednesday, further dampening sentiment.
A downgrade could affect the pricing of trillions of dollars of Treasury debt securities. Fitch’s move revived memories of 2011, when S&P downgraded the United States to AA-plus and set off a cascade of other downgrades as well as a stock market sell off.
“I hope Fitch knows the consequences of doing this and they’re almost doing it just to try and put a bit of pressure on,” ING’s Carnell said. “It doesn’t necessarily mean they will downgrade but it’s like saying, ‘you better be mindful, otherwise this is coming’.”
Overnight, Wall Street’s main indexes ended lower on debt-ceiling concerns.
