Taiwan leads losses as Asian markets fall on inflation anxiety

Taiwan stocks closed 4 per cent lower on Wednesday and clocked their worst day in more than a year as authorities mulled tighter restrictions to tackle COVID-19 cases, while other Asian equities fell on concerns of growing U.S. inflationary pressure.

Equities in Taipei pulled back from early losses of nearly 8.6 per cent while the Taiwan dollar recovered to hold steady after the country's deputy finance minister stepped in to call for calm, saying the stock market's fundamentals were sound.

Risk appetite took a beating after health authorities said they may raise the country's COVID-19 alert level in "coming days", which would mean closure of non-essential businesses, after a cluster of six new cases with no clear infection source was found. Even a small number of cases poses a huge challenge for the island that has kept a tight lid on community outbreaks.

As of April-end, Taiwan stocks rose more than 100 per cent from their lowest levels in March last year, buoyed by strong demand for the country's chips and electronics exports as the work-from-home shift boosted demand for home electronics.

The Philippine central bank kept its benchmark interest rates unchanged at a record low, as widely expected, in a bid to support economic recovery amid a recent spike in COVID-19 cases.

Shares closed 1.4 per cent lower at six-month low prior to the decision. Currencies and stocks in export-focused nations fell most, with shares in Seoul slipping 1.5 per cent and the won weakening 0.5 per cent.

Thai equities lost 0.8 per cent and the Thai baht weakened 0.3 per cent. Despite various U.S. Federal Reserve officials reiterating a firmly dovish policy stance, investors worried that higher inflation from a spike in commodity prices could force the Fed to raise interest rates.

U.S. inflation data due later in the day also added to nerves.

"Markets are calling the Fed's bluff, fearing that it may need to hike rates more quickly and aggressively than expected. The U.S. CPI release will be a big focus for more clues," said Mitul Kotecha, chief EM Asia and Europe strategist at TD Securities.

"Should the Fed hint at an earlier taper, it would likely put pressure on Asian markets, with a likely firmer dollar weighing on Asian FX and higher U.S. yields pressurising Asian local currency bonds and equities," Kotecha said.

Indonesian markets were closed for the Eid festival. Markets in India, Malaysia and Singapore will also be on holiday on Thursday for the festival.