Asian Markets Tumble as Stimulus Disappoints and Fed Decision Looms

Asian equities faced a broad sell-off on Friday, mirroring Wall Street’s overnight losses, as investors braced for a pivotal U.S. Federal Reserve meeting next week. The Chinese markets led the region’s declines, weighed down by underwhelming policy signals from a closely watched legislative gathering.

U.S. stock indexes closed in the red on Thursday, with traders trimming positions ahead of the Fed’s anticipated 25 basis point rate cut. While Wall Street futures held steady during Asian trading hours, investor sentiment across the region remained subdued.

China’s Markets Slump on Tepid Stimulus Measures
China’s Shanghai Composite Index tumbled 1.8%, while the Shanghai Shenzhen CSI 300 Index dropped 2%. Hong Kong’s Hang Seng Index extended the downtrend with a 1.9% loss, underperforming other major Asian markets.

Disappointment stemmed from the limited scope of economic stimulus outlined at China’s Central Economic Work Conference (CEWC), which concluded on Thursday. The CEWC, a key event setting the country’s economic agenda for the coming year, failed to unveil aggressive new measures to reinvigorate growth.

ANZ analysts described the conference as a mere recap of prior initiatives, noting, “Most policy options have already been implemented or discussed by ministries at previous press briefings. The question now is not ‘what’ stimulus will come but ‘how much’ will be deployed.”

Official readouts indicated that China plans to expand its budget deficit, issue more debt, and ease monetary policy to support growth amid expected trade friction with the United States. However, market participants doubted whether these measures would generate immediate economic traction, particularly as deflationary pressures persist.

While Beijing used the CEWC to set preliminary targets for economic growth, deficit levels, and debt issuance, these figures will remain undisclosed until the annual parliamentary session in March.

Broader Asian Markets Reflect Caution
Japan’s Nikkei 225 fell 1.3%, with the TOPIX slipping 1.4% as investors prepared for the Bank of Japan’s upcoming policy meeting. Reports suggest the BOJ is likely to maintain its current interest rates, seeking more time to assess global uncertainties and wage growth prospects for 2024.

Elsewhere, Australia’s S&P/ASX 200 declined 0.7%, and Indonesia’s Jakarta Stock Exchange Composite Index shed 0.3%, reflecting the overall cautious tone in global markets. In contrast, South Korea’s KOSPI Index bucked the trend, inching up 0.3% ahead of a parliamentary vote to impeach President Yoon Suk Yeol. The political turmoil followed Yoon’s brief and controversial imposition of martial law, which was swiftly rescinded but sparked a criminal investigation.

In Malaysia, the FTSE Malaysia KLCI Index edged 0.3% higher, while India’s Nifty 50 futures suggested a muted start to trading on Friday.

Global Focus Turns to Central Bank Policy
Investor sentiment across Asia was further pressured by uncertainties surrounding the Federal Reserve’s long-term rate strategy. While a rate cut of 25 basis points is widely expected next week, recent producer and consumer inflation data have cast doubt on how aggressively the Fed will ease in 2025.

Amid this uncertainty, the dollar’s strength has added headwinds for emerging markets and risk-sensitive assets. As markets await key decisions from both the Fed and the BOJ, caution is likely to dominate trading in the days ahead.