Asia markets dive as Fed cut sparks fears

Dealers work under a monitor flashing the closing price of the Nikkei at a foreign exchange brokerage in Tokyo yesterday. Japanese stocks fell with the Topix index closing at its lowest in six weeks, after the yen gained as the Federal Reserve pushed ahead with stimulus cuts.

AFP/TokyoAsian markets slumped yesterday, extending a global rout on renewed fears about emerging economies after the US Federal Reserve pressed ahead with its stimulus reduction and Turkey and South Africa hiked interest rates. The dollar and euro sank against the yen as dealers scurried into safer investments after the Fed decision, while sentiment took a further blow from data confirming Chinese manufacturing contracted in January. Tokyo dived 2.45%, or 376.85 points, to close at 15,007.06, leading other markets lower. Sydney shed 0.78%, or 40.9 points, to close at 5,188.1 and Hong Kong lost 0.48%, or 106.19 points, to end at 22,035.42 in half-day trading ahead of the Chinese New Year holiday. Shanghai closed 0.82%, or 16.83 points, lower at 2,033.08. Taipei and Seoul were closed for public holidays. In other markets, Bangkok lost 0.58%, or 7.35 points, to 1,264.07; coal producer Banpu fell 2.83% to 25.75 baht, while Thai Oil dropped 2.80% to 52baht. Jakarta ended up 0.03%, or 1.41 points, at 4,418.76; Asia Pacific Fibers gained 5.43% to 97 rupiah, while mobile phone provider Indosat rose 2.17% to 4,240 rupiah. Wellington fell 0.67%, or 32.88 points, to 4,849.84; telecom was off 1.7% at NZ$2.32 and Fletcher Building was down 0.3% at NZ$8.87. Kuala Lumpur gained 0.83%, or 14.80 points, to 1,804.03;  Tenaga added 5.0% to 11.80 ringgit and Petronas Gas rose 1.7% to 23.38 but Malaysia Airports Holdings lost 2.2% to 8.46 ringgit. Singapore fell 0.68%, or 20.71 points, to 3,027.22; Singapore Airlines tumbled 0.83% to Sg$9.59 and Singapore Telecom eased 0.28% to Sg$3.53. Manila slipped 0.47%, or 28.65 points, to 6,041.19; Philippine Long Distance Telephone fell 0.30% to 2,698pesos and Metropolitan Bank eased 0.26% to 76pesos but SM Prime Holdings gained 2.24% to 15.52 pesos. Wall Street sank on Wednesday after the Fed said it would reduce its bond-buying programme by $10bn a month to $65bn, citing a pick-up in the US economy. That followed a similar announcement in December. Investors took flight after the announcement, which stoked fears of capital flows from emerging markets that have benefited from the Fed’s cheap money policies, as dealers look for safer investments back home. In New York, the Dow dived 1.15%, the S&P 500 1.01% and the Nasdaq 1.14%. London, Frankfurt and Paris too were all down ahead of the Fed announcement. Global equity and forex markets have been in turmoil since the end of last week after a plunge in the Argentine peso sparked fresh developing nation fears. Anxiety about economic growth has been exacerbated by preliminary data from HSBC indicating manufacturing activity in China—the world’s second-biggest economy—had contracted in January. HSBC confirmed its purchasing managers’ index for China had fallen to 49.5, the lowest figure since July. Rate hikes by Turkey and South Africa on Wednesday failed to stem losses in their currencies as developing economies around the world battle against foreigners repatriating their cash. Russia, Brazil and Argentina also faced further drops in their units, despite the International Monetary Fund stressing there was not a general panic and that each faces specific challenges. Fed ignores emerging markets Despite global jitters, Fed policymakers made no mention of emerging markets, leaving investors with little comfort, analysts said. “The market was discouraged by the fact that they did not refer to emerging economies,” said Hirokazu Kabeya, senior strategist at Daiwa Securities. In forex trade, the dollar and euro edged up against the yen compared from US trading, although down heavily from Asian levels on Wednesday. The yen is considered a safe investment in times of trouble. The dollar made up a little of the ground lost after the Fed announcement, hitting 102.47 yen by late afternoon in Asia, compared with 102.25 yen in New York on Wednesday. The euro also bought 139.57 yen against 139.71 yen and $1.3617 against $1.3662. Emerging market currencies were also under pressure. Turkey, where political upheaval is fuelling market fears, doubled its benchmark rate to 10.0%, while South Africa announced a half a percentage point rise. India lifted rates a modest quarter-point to slow inflation, itself also partly a consequence of the rupee’s slump. The moves had only a brief impact on the respective currencies. The Turkish lira jumped about 3.0% to 2.17 to the dollar after the rate move, before shedding half those gains. It was sitting at 2.2764 per dollar yesterday. South Africa’s rand was at a five-year low of 11.38 to the dollar shortly after the rate hike announcement. Although it rebounded later to 11.3094, that was still lower than the pre-rate hike rate. Indonesia’s rupiah weakened to 12,215 to the dollar compared with 12,160 on Wednesday, although the Indian rupee rallied to 62.7010 against 62.4680. In oil trade, New York’s main contract West Texas Intermediate for March delivery gained six cents to $97.42.