Asian stocks drop after Fitch puts US credit rating on negative watch

Asian stocks slid and Treasury yields hovered near 20-year highs on Thursday after Fitch Ratings put the US on negative watch, with policymakers in Washington struggling to reach an agreement to avert an unprecedented government default.

Hong Kong’s Hang Seng index shed 2 per cent, while Australia’s S&P/ASX 200 fell almost 1 per cent and China’s benchmark CSI 300 index fell 0.5 per cent. Japan’s Topix was flat.

The losses for stocks across the region came after rating agency Fitch said it had put its triple A credit rating for the US on negative watch, signalling to investors that a downgrade could occur.

Fitch last moved the US to negative watch during debt ceiling negotiations in Washington in October 2013, two days before that year’s so-called X-date, when the government was expected to run out of cash.

“We believe risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin to miss payments on some of its obligations,” the rating agency said.

Fitch said its decision reflected “increased political partisanship that is hindering reaching a solution to raise or suspend the debt limit despite the fast-approaching X-date”.

Yields on Treasury bills maturing next month — around the expected date that the government could run out of money — eased to 5.67 per cent in Asian trading, down further from a high of 5.88 per cent touched earlier this week but still near the highest level in more than two decades. Yields on two-year Treasuries and 10-year notes were slightly lower as well.

The sell-off in Asia followed another poor performance on Wall Street, where the S&P 500 fell 0.7 per cent and the tech-focused Nasdaq Composite shed 0.6 per cent as traders grew more nervous about the prospect of a US default in June.

However, semiconductors stocks bucked the trend, posting outsized gains after US chipmaker Nvidia forecast sales would reach $11bn for the three months to the end of July, far exceeding analyst expectations on the back of soaring demand for chips used in generative artificial intelligence systems.

Nvidia shares rose as much as 29 per cent in after-market trading following the announcement, while in Asia, Taiwan Semiconductor Manufacturing and South Korea’s SK Hynix rose about 3 and 5 per cent, respectively.

Futures tipped the S&P 500 to rise 0.4 per cent when trading begins on Wall Street later in the day, while the FTSE 100 was set to rise 0.3 per cent.