Asian shares rise as US Federal Reserve strikes less hawkish tone

Rally comes after Fed Chair Jerome Powell says central bank not “actively considering” 0.75 percentage point increase.

Asian shares rose on Thursday after the US Federal Reserve raised its key interest rate by half a percentage point but struck a less hawkish tone than some investors had feared.

MSCI’s broadest index of Asia Pacific shares outside Japan rose 0.93 percent, although trading was restricted as Japanese and South Korean markets closed for public holidays.

Chinese shares bucked the trend, as rising COVID-19 cases and strict curbs in Beijing and the financial hub of Shanghai weighed on investor sentiment.

“The market is excited about the less hawkish Fed, but we cannot forget interest rates will only go up in Asia with higher inflationary pressure,” Gary Ng, a senior economist at Natixis in Hong Kong, told Al Jazeera. “Liquidity will still be tighter and investors need to brace for more turbulence in different asset classes ahead.”

Asia’s rally followed US gains after Fed Chair Jerome Powell indicated that the central bank is looking at similar rate hikes in June and July but is not “actively considering” a 0.75 percentage point increase.

The Dow Jones Industrial Average overnight rose 2.81 percent, while the S&P 500 gained 2.99 percent and the Nasdaq advanced 3.19 percent.

Although the Fed’s half a percentage point rate increase was its biggest hike in 22 years, Powell’s remarks tempered expectations for a period of aggressive tightening that would risk tipping the world’s largest economy into a recession.

In Asia, Hong Kong’s benchmark Hang Seng Index rose 0.77 percent in early trading, with the tech sector index adding 1.43 percent.

Australia’s S&P/ASX 200 also performed strongly, rising 0.61 percent.

China’s benchmark CSI300 opened 0.16 percent lower as mainland markets resumed trade after a three-day holiday.

Jeffrey Halley, senior market analyst for the Asia Pacific at OANDA, said Asia’s rally was more restrained than in the US due to concerns about economic headwinds in the region.

“The relief rally we saw overnight in the US is certainly more muted in Asia. Although markets are higher, we should note that both Japan and South Korea are out today – two markets driven mostly by short-term retail sentiment,” Halley told Al Jazeera. “I believe Asia is struggling to fully replicate the rally seen over in the US because of concerns around China’s COVID-zero restrictions, their impact on China growth, and by default, the knock-on impact it will have on the rest of the region.”

Halley said markets were also bracing for interest rate hikes in this region in the near future.

“The unscheduled rate hike by India yesterday throws down the gauntlet to other Asian central banks as well,” he said, referring to the Reserve Bank of India’s 0.4 percentage point hike on Wednesday. “And the increasing threat of rate hikes is also limiting the bullish reaction today. As is the 4 percent rise in oil prices overnight.”

Oil extended gains after the European Union, the world’s largest trading bloc, outlined plans to phase out imports of Russian oil.

US crude futures gained 0.4 percent to $108.21 a barrel and Brent rose 0.36 percent to $110.54. Both benchmarks rose more than $5 a barrel on Wednesday.