Share markets in Asia plunged to a 19-month low yesterday after Wall Street’s worst losses in eight months led to broader risk aversion, a rise in market volatility gauges and concerns over overvalued stock markets in an environment of rapidly rising dollar yields.
MSCI’s broadest index of Asia-Pacific shares outside Japan was off 3.8% around 0500 GMT, and earlier touched its lowest level since March 2017.
The sell-off, which came as the head of the International Monetary Fund, Christine Lagarde, said stock market valuations have been “extremely high”, erased hundreds of billions of dollars of wealth around the region.
“Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” summed up analysts at ANZ.
Japan’s Nikkei ended down 3.9% at 22,590.86, its steepest daily drop since March, while the broader TOPIX lost around $207bn in market value, falling 3.5%. Shanghai shares dropped 4.9%, on track for their worst day since February 2016, to their lowest level since late 2014, while China blue chips slid 4.4%.
Shares in Taiwan were among the region’s worst-hit, with the broader index losing 6.3%. Seoul’s Kospi index was down 3.8%.
“We can’t see where the bottom point will be,” said Chien Bor-yi, an analyst at Taipei-based Cathay Futures Consultant. “Further short-term equity pain may well be unavoidable in South Korea as foreigners are selling, but bond market is holding up,” said Peter Park, head of securities management at South Korea’s IBK Insurance. Sinking global shares have raised the stakes for US inflation figures due later yesterday as a high outcome would only stoke speculation of more aggressive rate hikes from the Federal Reserve. “We’re all just watching the Fed. We’re all watching the US economy, we’re worrying about an inflation spike or a wages spike that will come through,” said Rob Carnell, chief economist and head of research at ING in Singapore.
But he said that he expected the data to show inflation peaking rather than moving sharply higher, which “could restore a little bit of calm.”
The shift in yields is also sucking funds out of emerging markets, putting particular pressure on the Chinese yuan as Beijing fights a protracted trade battle with the United States. Yesterday, the president of the World Bank said he is very concerned about trade tensions and warned of a “clear” global economic slowdown if tariff threats escalate.
China has suspended approvals for an overseas investment product in Shanghai and has asked license holders such as JPMorgan Asset Management and Aberdeen Standard Investments to be “low profile” in marketing it, as concerns rise in Beijing over possible outflow pressures. China’s central bank has been allowing the yuan to gradually decline, breaking the psychological 6.9000 barrier and leading speculators to push the dollar up to 6.9377 at 0602 GMT.
The onshore yuan was trading at 6.9305 per dollar at 0606 GMT, 65 pips weaker than the onshore close of 6.9240 Wednesday. China’s move has forced other emerging market currencies to weaken to stay competitive, and drawn the ire of the United States which sees it as an unfair devaluation.
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