Asia's equities continue their January decline

Due to uncertainty around the timing of interest rate reduction in the United States, the majority of Asian stocks saw more losses on Thursday. Meanwhile, the downgrade of four significant state-owned asset managers by Fitch severely affected the Chinese markets.

Wall Street led by example, but regional markets lagged, and on Wednesday, U.S. stock indices dropped for a second consecutive session as investor apprehension persisted. U.S. equities had a significant surge in profit-taking after an incredible surge through December.

Four Chinese state-owned asset managers had their ratings reduced by one level by Fitch, which also placed three of the four companies on watch for further possible downgrades.

The ratings agency pointed out that the four were under increasing stress from the persistent downturn in the real estate market and growing doubts about the government's capacity to sustain the asset managers' finances. This was concerning for China's financial markets since it raised questions about the state-backed companies' capacity to acquire non-performing assets off the open market.

The drop comes only weeks after Moody's warned of a possible fall to China's sovereign rating, dealing further damage to public opinion of the country.

Though the Caixin Services PMI indicates that China's service industry increased more than predicted in December, a favourable private poll on the sector did nothing to boost confidence in the nation.

In 2023, Chinese equities were among the main stock indices with the lowest performance, as the anticipated post-COVID economic recovery was essentially non-existent.

The Federal Reserve's December meeting minutes revealed that authorities had made headway in combating inflation in the previous year. However, the minutes also did not indicate as to when the bank may start lowering interest rates, as suggested during the discussion.

According to the minutes, officials were worried about whether monetary policy was excessively tight and if the US economy would experience a gentle landing.

Although a rate reduction of at least 75 basis points by the Fed is still anticipated in 2024, markets are still unsure about when exactly those reductions would occur. Tech companies, which had climbed substantially through December on the expectation of rate reduction this year, saw a heavy dose of profit-taking as a result.

Additionally, the markets expressed caution ahead of this Friday's nonfarm payrolls report, which will likely influence monetary policy.

(Sources: investing.com, reuters.com)