Shares of technology companies led stocks in China lower Thursday while investors continued to grapple with the trajectory for global central bank policy and the prospect of increasing trade friction.
Hong Kong stocks fell 1.1% after a disappointing earnings report from tech titan Tencent Holdings 0700, -5.02% while Nasdaq-100 futures were off 0.8%.
Shares in China also fell after the Federal Reserve’s rate hike by a quarter percentage point late Wednesday prompted the People’s Bank of China and Hong Kong’s de facto central bank to raise rates, weighing on stocks in both markets.
The PBOC lifted its seven-day reverse repo rate, a benchmark for short-term interest rates, by 0.05 percentage point to 2.55%. Hong Kong’s de facto central bank also raised interest rates to keep the Hong Kong dollar in its tightly controlled range against the U.S. dollar.
The Fed also lifted its forecasts for gross domestic product growth for this year and next. While it also signaled that rates would rise over the next three years by more than it forecast in December, it stayed on track for three increases this year.
The Federal Open Market Committee “wanted to sound hawkish and tried to do so in the least disruptive manner possible,” said Marvin Loh, senior global market strategist at BNY Mellon.
Still, the PBOC’s move to follow the Fed pushed the Shanghai Composite SHCOMP, -0.53% down 0.5%, and stocks in Shenzhen 399106, -0.48% fell 1%.
Tech stocks led declines in the Hang Seng index HSI, -1.09% Internet company Tencent weighed on the index after reporting declining profit margins at its underlying business. Its shares dropped 5%.
The White House later Thursday is expected to announce a raft of punitive measures aimed at China, including levies totaling at least $30 billion.
The U.S. government has sought to harden policy toward China on intellectual property issues for some time, said Ian Hui, global market strategist at J.P. Morgan Asset Management.
“For the moment, we don’t see this as a trade war, but a trade skirmish,” he said. However, China’s response will be key to watch, he added.
South Korea’s Kospi SEU, +0.44% gained 0.4%, and stocks in Manila PSEI, +2.72% rose 2.7% ahead of an expected central bank decision to leave rates unchanged.
Central banks in Taiwan and Indonesia were also due to meet later Thursday, with both expected to stand pat following the Fed’s move. The Bank of England also meets later Thursday.
Central banks acting too aggressively to cool economic growth could disrupt a global economy where most nations are growing in unison, said Catherine Yeung, investment director at Fidelity International.
“The biggest risk for the market is policy mishaps,” she said, especially with trade policies. “If we start to see tariffs, you could see more consumer price inflation as higher prices are passed on to consumers.”
In Japan, the Nikkei Stock Average NIK, +0.99% rose 1% helped by a steep climb in crude oil futures CLK8, -0.55% on Wednesday following a surprise decline in U.S. oil inventories.
The less hawkish-than-expected Fed interest rate view and the prospect of further trade friction dragged on the dollar. The ICE U.S. Dollar Index BUXX, -0.03% , which tracks the dollar’s strength against a basket of six major currencies, fell 0.3%. The dollar USDJPY, -0.53% was recently 0.2% weaker against the yen at ¥105.86.
Yields on benchmark U.S. 10-year Treasury TMUBMUSD10Y, -1.43% notes were last 0.04% lower at 2.8665%.