Banking stocks lead decline in Hong Kong after Federal Reserve defies expectations on rate increases next year

Hong Kong and China stocks fell on Thursday, in line with the declines seen across Asia, as investors were disappointed after the US Federal Reserve defied their expectations and raised interest rates and hinted at more next year.

On Wednesday, although the Fed indicated that it would bring down the number of interest rate increases from three to two in 2019, some investors were let down by the absence of a more accommodative stance.

“The market was expecting the Federal Reserve to reconsider its interest rate path after some leading market commentators in the US had pointed to the risk of policy errors if it did not halt the rate increases, given the increasing signs of slowing global trade,” said Alex Wong, director at Ample Finance Group.

Over the weekend, former member of the Federal Reserve board and leading hedge fund manager Stanley Druckenmiller wrote in The Wall Street Journal’s op-ed section that the Fed should halt its interest rate increases, as there were enough indicators, such as slowing global trade growth to suggest the economy might need some monetary accommodation.

Fed chairman Jerome Powell partly echoed that view, as he said on Wednesday that the US economy is showing signs of “softening”, adding that most officials have “modestly” lowered their growth forecasts for next year.

The Hang Seng Index lost 0.9 per cent, or 241.86 points, to 25,623.53, with banking and financial stocks leading the declines.