Hong Kong's Hang Seng falls nearly 3%; Japan’s Nikkei is 1.5% lower on Fed rate hike jitters

Asian shares fell on Tuesday, with Japan's Nikkei, Hong Kong's Hang Seng Index and Australia's S&P/ASX 200 Index falling anywhere between 1% to 3%. The initial optimistic market reaction led by a deal to avoid a US government shutdown and signs that China's economy has begun to bottom out fades rather quickly in the wake of the recent slump in Treasuries, triggered by the Federal Reserve's (Fed) hawkish outlook.

Fed officials continue to back the case for further policy tightening to bring inflation back to the 2% target, reaffirming bets for at least one more rate hike by the end of this year. This, in turn, pushed the yield on the benchmark 10-year US government bond to its highest level since 2007, fueling concerns about economic headwinds stemming from rising borrowing costs and tempering investors' appetite for perceived riskier assets.

Furthermore, persistent worries about China's ailing property sector take a toll on the global risk sentiment. Meanwhile, shares of China Evergrande jumped over 40% in a volatile trade on Tuesday, touching its highest level since September 25. After being suspended last Thursday, the resumption of trading raises hopes of potential progress in debt restructuring and boosts the Evergrande's stock, though risks of the company being liquidated are increasing.

The ongoing investigation complicates the world's most indebted developer's restructuring plan. Moreover, Reuters reported last Tuesday that a major Evergrande offshore creditor group was planning to join a liquidation court petition filed against the developer if it does not submit a new debt revamp plan by the end of October. This raises fears of a contagion, which might continue to weigh on investors' sentiment and cap any attempted recovery.