Panic Selling Has Grim Milestones Flashing Across Asian Stocks
(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.
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Many equity indexes across the region hit bleak milestones on Monday, with Japan and the tech-heavy markets of Taiwan and Korea bearing the brunt of the selloff — 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, while trading was also halted for the Kospi and Kosdaq cash and futures markets in Seoul.
The MSCI Asia Pacific Index plunged as much as 6.7% to head for its worst day since October 2008, and was poised to enter a technical correction. The move erased all its gains for the year. Heavyweight Taiwan Semiconductor Manufacturing Co. capped a record drop, while financial and industrial shares were the other big drags on the regional benchmark.
“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 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.
Geopolitical tensions in the Middle East 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.
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.
In Japan, the Topix and Nikkei 225 both ended down more than 12% 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%.
South Korea’s benchmark Kospi Index finished down 8.8% as the rotation away from tech-heavy markets intensified. The gauge also entered a correction. TSMC’s plunge caused Taiwan’s benchmark stock index to end 8.4% lower in Taipei, marking its worst selloff since 1967.
A gauge 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.
–With assistance from Cecile Vannucci.
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