Asian stocks edge higher as Fed decision looms, oil rally pauses

Asian stocks managed to climb modestly on Wednesday as investors awaited the Federal Reserve's decision on interest rates, with gains in South Korea and Japan helping to offset recent losses. The MSCI Asia Pacific index climbed by nearly 0.2%, while South Korea's KOSPI rose by 0.9% and Japan's Nikkei 225 added 0.6%. In contrast, Hong Kong's Hang Seng index slipped by 0.2%.

U.S. equity futures also showed a slight uptick, with the Nasdaq 100 Futures and S&P 500 Futures increasing by 0.2% each. Market participants are pricing a 92.4% likelihood of a 25-basis-point Fed hike during the upcoming decision, up significantly from 59.4% a week prior, signaling the first rate increase since 2023. The Bank of England will meet on Thursday, followed by the Bank of Japan on Friday, making this a crucial period for global monetary policy discussions.

Bond markets have been under stress as the Fed decision looms, with the U.S. 10-year Treasury yield briefly hitting 5% on Tuesday, the highest level since 2007, before settling around 4.99% in Asian trading. The yield move was driven by reduced Treasury buybacks and worries about fiscal deficits, high debt issuance, and financing requirements linked to AI technologies.

Within the technology sector, Asian equities exhibited mixed results. SK Hynix gained 2.3% and Samsung Electronics increased by 1.5%, while Kioxia dropped 4%. Murata Manufacturing rose by 1.6%, Largan jumped 4.6%, and Taiwan Semiconductor Manufacturing fell by 0.2%.

OCBC's Head of Wealth Advisory, Chez Anbu, noted that although markets remain resilient, they may trade in a narrow range until more clarity emerges on Fed policy, inflation, and seasonal patterns in September. OCBC maintains a constructive outlook on equities, recommending a diversified portfolio with a focus on lower-volatility and income-generating assets, selective engagement in the long-term AI theme, and broader exposure across the technology value chain.

Oil prices saw a brief respite, with Brent crude falling by about 0.6% to around $108 a barrel after recording a roughly 20% increase this month. Supply constraints continue to be tied to the ongoing conflict involving Iran and disruptions in the Strait of Hormuz, while Saudi Arabia's East-West pipeline remains affected by recent attacks. U.S. crude inventories surged more than expected, helping to dampen the rally.

Mainland Chinese equities also participated in the modest upside, with the CSI 300 index climbing by 0.6% and the Shanghai Composite gaining 0.5%. Despite August industrial output rising by 5.2%, retail sales expanded by a mere 0.4%, and fixed-asset investment fell by 7.2% in the first eight months, coupled with a 19.9% drop in property investment, underscoring weak domestic demand despite robust factory activity.

In Hong Kong, tech stocks were a mixed bag, with Alibaba falling by 0.5%, Meituan dropping 1.3%, JD.com declining 1.22%, and Tencent shedding 1% each. However, MiniMax surged by 5.2% and Z.AI rose by 6%.

Maybank analysts suggested that the debate surrounding AI monetization, driven by falling model prices and rising capex, is more of a concern than a slowdown in spending. For Hong Kong and China, they favor companies benefiting from cheaper open-weight AI, while pure-model and capex-heavy platforms face heightened scrutiny. Meanwhile, data revealed that Japan's August exports surged by 19.3%, while imports jumped by 28%, resulting in a ¥1.106 trillion trade deficit; exports to the U.S. and China rose by 24.9% and 20.6%, respectively.

In Indonesia, the Jakarta Composite index climbed by 0.7% following President Prabowo Subianto's appointment of Suahasil Nazara as finance minister, with analysts anticipating that his appointment could lower risk premia and bolster large banks, property, cement, and tower sectors. Elsewhere, Australia's S&P/ASX 200 index rose by 0.3%, New Zealand's NZX 50 index increased by 0.8%, Singapore's Straits Times index added 0.2%, while India's Nifty 50 futures climbed by 0.4%.