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Stocks

Asian stocks slide as Fed ready to cut stimulus, raise rates again in 2017

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Federal Reserve Board Chairwoman Janet Yellen speaks during a news conference after the Fed releases its monetary policy decisions in Washington on June 14.   © Reuters

HONG KONG (Nikkei Markets) -- Asian stocks outside of Japan fell Thursday after the U.S. Federal Reserve delivered a widely-expected rate increase and signaled there could be another hike to borrowing costs this year.

The U.S. central bank on Wednesday raised its key lending rate by 25 basis points to a target range of 1% to 1.25% while its members kept projections showing they expect a third rate increase in 2017. The authority also outlined plans to begin reducing its $4.2-trillion bond portfolio, built in the wake of the global financial crisis, this year. The Nikkei Asia300 Index of 316 regional companies was down 0.3%, with several financial, property and technology sector shares taking a hit.

The Hang Seng Index slid 1% to 25,609.15 by the midday break in Hong Kong, while South Korea's Kospi lost 0.7% in Seoul and Singapore's Straits Times Index eased 0.6%.

The retreat in Asian equities reflects some concern that the Fed's tightening could unravel largely accommodative monetary conditions that have prevailed since the 2008 financial crisis, spurring global assets. Some analysts considered the decision as encouraging, as it signals the Fed's confidence in the U.S. economy and also as the timeline leaves room for further gains in risk assets.

"I think it should be taken positively in terms of global policy direction because there are no signs of overheating right now," said Alan Richardson, investment manager at Samsung Asset Management. "The expectation will still be that for this year and the next year, you won't get policy rates exceeding 2%. That would also mean that long-term bond yields would be below 3% -- so you have quite a competitive global backdrop for asset prices to perform well."

The benchmark U.S. 10-year Treasury yield slumped to 2.14% Wednesday as disappointing U.S. inflation and retail sales numbers overshadowed the Fed meeting outcome.

Risk sentiment was also hurt after the Washington Post reported, citing officials, that special counsel Robert Mueller's widening probe into Russia's role in the 2016 U.S. presidential elections now includes an examination of whether President Donald Trump attempted to obstruct justice.

Developers in Hong Kong dropped after the Hong Kong Monetary Authority on Thursday raised its base rate by 25 basis points and its chief executive Norman Chan warned that mortgage repayments in the city were poised to increase. New World Development and Sun Hung Kai Properties shed 2.3%. Hong Kong borrows U.S. monetary policy because of the local currency's peg to the dollar.

"It will hurt the property market, particularly because the HKMA has already warned the market of the uptrend of interest rates, and that will possibly affect the domestic property market," said Castor Pang, head of research at Core Pacific Yamaichi International.

Real estate companies in Singapore also edged lower, with CapitaLand sliding 1.4% and City Developments dropping 0.8%.

Regional energy producers came under pressure after oil prices dropped to a five-week low following an increase in U.S. gasoline stockpiles and crude production. China Petroleum and Chemical (Sinopec) lost 2.2% in Hong Kong, Sapura Energy fell 3.6% in Kuala Lumpur and PTT Exploration and Production slipped 0.8% in Bangkok.

Sembcorp Industries, which controls rig-builder Sembcorp Marine, fell 1.3%. Sembcorp Marine shed 1.9%.

The Shanghai Composite edged 0.1% lower after rising as much as 0.2% earlier. The weakness came despite the International Monetary Fund's decision to raise China's growth forecast for 2017 to 6.7% from its 6.6% estimate in April.

Internet major Tencent Holdings fell 1%, among the biggest contributors to losses on the Nikkei Asia300 Index. Canadian artificial intelligence company Element AI said it raised $102 million from Tencent and South Korea's Hanwha Investment.

Hyundai Motor fell 3.6% in Seoul. The Competition Commission of India imposed a $14-million fine on the carmaker on Wednesday.

Heavyweight lenders in the region also fell after the Fed's move, with Industrial and Commercial Bank of China (ICBC) and China Construction Bank (CCB) dropping 1.2% in Hong Kong, while KB Financial Group lost 2.3% in Seoul and United Overseas Bank slid 1.6% in Singapore.

Astro Malaysia Holdings fell 1.1% in Kuala Lumpur. Late Wednesday, the broadcaster reported a 3.1% decline in first-quarter profit on lower advertising income.

-- Suzannah Benjamin and V. Phani Kumar

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