SINGAPORE (Nikkei Markets) -- Singapore and Malaysian shares fell Thursday, tracking U.S. markets, after the minutes of the Federal Reserve's latest meeting showed the authority may start paring its $4.5 trillion balance sheet this year.
The Nikkei Asia300 index declined after minutes of the March meeting indicated that the Fed could unwind its balance sheet later this year if the economy continues to perform in line with expectations. Such a move could put upward pressure on U.S. bond yields and hurt demand for equities. Following the minutes, some analysts changed the outlook for U.S. federal fund rates this year and expectations as to when the Fed will start reducing its balance sheet.
"To our surprise, the minutes to the March meeting contained extensive discussion on balance sheet policies," Barclays said in a note. "We change our call on the timing of the end of reinvestments and the path of interest rate increases in 2017. "
Barclays now expects the committee to raise the target range for the federal funds rate two more times this year, in June and September, and announce balance sheet runoff at the December Fed meeting.
Further denting investors' risk appetite were some policymakers' views that equity prices were "quite high relative to standard valuation measurements." U.S. House of Representatives Speaker Paul Ryan's comments that there was no consensus on the tax reforms yet also damped demand.
"Any hope of tax reform materializing in August is actively being priced out of markets here," said Chris Weston, chief market strategist at IG. "There is no doubt about it that the bears have gained an advantage, but whether we see a more lasting trend lower is obviously yet to be seen."
Telecom operators remained under pressure for the second day following the results of the General Spectrum Auction (GSA).
"The high cost of the just concluded spectrum auctions in Singapore is credit negative for Singapore Telecommunications as it will further increase debt at a time when leverage is testing Moody's tolerance range for the rating level," Moody's Investors Service said in a statement.
Global Logistic Properties rose 1.1% to S$2.79 after saying it had signed 264,000 square of new leases globally over the past three months, driven by increasing demand in third-party logistics and e-commerce industries.
"Technically speaking, the underlying index is still firmly caught within its range-bound trading zone," Kenanga Research said in a note. "With the lack of fresh domestic catalyst and cautious regional sentiment ahead of President Trump and President Xi Jinping meeting, we continue to view that the benchmark index could continue its sideways trading play."
The two-day meeting between the leaders of China and U.S. gets underway later in the day. The meeting has gathered additional importance after Trump last week said it was likely to be a "difficult one" and again raised concerns over his country's trade deficit with the Asian nation.
--Nimesh Vora and Kevin Lim
--Nikkei Markets is a real-time financial news service for South East Asia's markets published by Nikkei NewsRise Asia Pte Ltd, a Nikkei and NewsRise joint venture company. Nikkei Markets provides wide companies coverage in the region, including the Nikkei's Asia300* companies.