Asian stocks tumbled on Wednesday as regional currencies weakened following comments overnight by Federal Reserve chair Jerome Powell that raise the possibility the US central bank would resume large-scale interest rate hikes to tame sticky inflation.
MSCI's broadest index of Asia-Pacific shares outside Japan was 1.69% lower at 514.71. Hong Kong's Hang Seng Index fell 2.35%, set for its worst day since late January, as shares in China slipped 0.42%. Australia's S&P/ASX 200 Index fell nearly 0.77%, while the Stock Exchange of Thailand (SET) Index closed 0.37% lower at 1,612.60.
Japan's Nikkei was one of few gainers in Asia, up nearly 0.5% as a weakening yen buoyed exporters.
In testimony to Congress, Mr Powell said a string of stronger than expected US economic data indicated "the ultimate level of interest rates is likely to be higher than previously anticipated".
After aggressive hikes last year, the Fed raised rates by 25 basis points at its last two meetings.
Yet resilient economic data since the start of this year stoked fears the Fed might return to larger rate hikes.
"If the totality of the data indicates that faster tightening is warranted, we would be prepared to increase the pace of rate hikes," he said.
Following the comments, the Malaysian ringgit weakened 1.11% to its lowest level in three months, while the South Korean won depreciated as much as 1.88%, eyeing its worst day in more than four weeks.
The Indonesian rupiah, the best-performing currency among its peers this year, and the Philippine peso followed suit to retreat 0.8% each, while the Indian rupee and the baht weakened 0.4% and 0.3%, respectively.
The Thai currency was trading at around 35.09 baht to the greenback late Wednesday.
In a related development, the Investor Confidence Index (ICI) dropped 24.3% in February from a month earlier, but remained in a bullish zone with the growth in tourism and expectations regarding the next general election being the main catalysts, the Federation of Thai Capital Market Organizations (Fetco) said Wednesday.
The ICI in February, which anticipates market conditions over the next three months, was 121.13 points, down 24.3% from the previous month, with the tourism recovery providing the most support, followed by the general election and fund inflows.
However, factors undermining investor confidence include worries over a resurgence of Covid-19 infections after Thailand eased restrictions to welcome back tourists, domestic household debt and the political situation ahead of the election, said Fetco chairman Kobsak Pootrakool.
A reading above 120 indicates the market is bullish.
Last month, the SET Index tracked global equity market declines on concerns over US interest rate hikes.
Triggered by a significant interest rate gap between Thailand and other countries, fund outflows from the Thai bourse continued, while the nation's slower economic growth tarnished sentiment, Mr Kobsak said.
At the end of last month, the SET Index closed at 1,622.35, down 2.9% from the previous month, with foreign investors net sellers of 43.5 billion baht.
In the first two months this year, foreigners were net sellers of 24.5 billion baht.
External factors to monitor include the Fed's monetary policy direction, trends related to job cuts, and the Russia–Ukraine war. In addition, tensions between the US and China have risen recently, according to Fetco.
Investors should follow Thailand's tourism recovery as arrivals increase and the government's "We Travel Together" scheme provides stimulus, said the organisation.
Fetco recommends the government accelerate the preparation of additional stimulus measures before the dissolution of parliament to cope with the prospect of a global economic slowdown.
"It may take a long time -- until August -- to form a new government, and government spending in the 2024 budget may have to be delayed," said Mr Kobsak.
"This will affect the overall economy, as has happened in the past."
