(Bloomberg) - Asian equities tumbled as fears of a deeper US economic slowdown and an extended rout in Japanese shares sapped risk appetite, with matters made worse by a violent rotation away from heavyweight tech stocks.
Many equity indexes across the region hit bleak milestones on Monday, with those in export-reliant markets of Japan, Taiwan and Korea suffering the most — their benchmarks sank more than 10% each intraday. Circuit breakers temporarily suspended trading of futures for the Topix as well as the Nikkei 225 Stock Average multiple times, while trading was also briefly halted for the Kospi and Kosdaq cash and futures markets in Seoul.
The MSCI Asia Pacific Index plunged as much as 6.7%, erasing all its gains for the year and taking losses from a July 11 peak to more than 10%. The regional benchmark was staring at its worst day since 2008, with shares of index heavyweight Taiwan Semiconductor Manufacturing Co. capping a record drop as the tech sector led losses. Financial and industrial stocks were the other big drags on the MSCI Asia gauge.
“Markets are in a meltdown and there’s a lot of panic selling now,” said Kyle Rodda, a senior market analyst at Capital.Com. “There are a lot of moving parts, but this is the essence of things: a looming slowdown in the US economy has cast doubts about global economic growth. The rapid move in the yen is putting downward pressure on Japanese equities, but it’s also driving an unwind of a major carry trade.”
The flight to safety has intensified after weak US economic data spurred concern that the Federal Reserve may have been behind the curve in cutting rates and will now likely need to ease monetary policy aggressively to head off a recession. US hiring slowed by more than forecast in July and the unemployment rate rose to the highest level in nearly three years, fueling worries of a more pronounced slowdown.
Asia is getting hit particularly hard as these worries are coinciding with a worsening rout in its biggest market — Japan. The nation’s equities command a weightage of more than 33% in the regional benchmark. Geopolitical tensions in the Middle East have further added to the cautious sentiment as Israel braced for a possible attack from Iran and regional militias in retaliation for assassinations of Hezbollah and Hamas officials.
“Japan is at the epicentre of the Asia selloff,” said Nirgunan Tiruchelvam, an analyst at Aletheia Capital in Singapore. “It has sent tremors throughout the market.”
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The Topix and Nikkei 225 both ended down more than 12% on Monday as investor confidence crumbled on a surge in the yen, tighter monetary policy and broader concern about the US economy. The declines drove recent losses for the two indexes to more than 20% each, putting them into bear markets.
Apple Inc.’s suppliers in Asia slumped after Berkshire Hathaway Inc. nearly halved its stake in the iPhone maker. US stock index futures also plunged during Asia hours, with contracts on the Nasdaq 100 sliding more than 6% before paring some of the declines.
This “feels more like a global equities risk off in general and the profit taking is being done in sectors or geographies that have done well,” said Vey-Sern Ling, managing director at Union Bancaire Privee.
South Korea’s benchmark Kospi Index finished down 8.8% as the rotation away from tech shares intensified. The gauge also entered a correction as heavyweight Samsung Electronics Co.’s stock sank 10%. In Taipei, a similar plunge in TSMC’s shares caused Taiwan’s benchmark index to end 8.4% lower, marking its worst selloff since 1967.
A measure of implied volatility for the Nikkei 225 Stock Average jumped a record 140% to its highest level since the global financial crisis in 2008, while South Korea’s Kospi 200 Volatility Index more than doubled to a four-year high. Similar measures of equity swings in Australia, Hong Kong and India rose more than 24%.
“Sentiment toward stocks will likely remain fragile for now as the market debate will likely remain on US soft-landing versus a recession, with the next major labor market report a month out,” said Chetan Seth, an Asia-Pacific equity strategist at Nomura Holdings Inc.
Markets at a Glance
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MSCI Asia Pacific Index down 5.9%
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Japan’s Topix Index fell 12%; Japan’s Nikkei Index fell 12%
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China’s CSI 300 Index fell 1.2%; Hong Kong’s Hang Seng Index fell 1.5%; Hong Kong’s Hang Seng China Enterprises Index fell 1.6%
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Taiwan’s Taiex Index fell 8.4%
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South Korea’s Kospi Index fell 8.8%; South Korea’s Kospi 200 Index fell 9.1%
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Australia’s S&P/ASX 200 Index fell 3.7%; New Zealand’s S&P/NZX 50 Gross Index fell 1.5%
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India’s NSE Nifty 50 Index fell 2.7%
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Singapore’s Straits Times Index fell 4.1%; Malaysia’s KLCI Index fell 4.6%; Philippines’s PSEi Index fell 2.6%; Indonesia’s JCI Index fell 3.4%; Thailand’s SET Index fell 2.7%; Vietnam’s VN Index fell 3.9%
By Abhishek Vishnoi, Youkyung Lee and John Cheng
With assistance from Cecile Vannucci
