SHANGHAI: Asian trading floors were a sea of red once again on Friday as the global rout returned with a vengeance on intensifying fears about tighter US interest rates. Tokyo, Hong Kong and Shanghai were among the worst hit as investors piled into safe haven assets such as gold and the yen.
Chinese stocks suffered their worst day in almost two years on Friday, with blue-chip led carnage dragging the markets into correction territory after steep falls overnight in US stocks.
The benchmark Shanghai Composite Index tumbled 4.0 per cent and the blue-chip CSI300 ended the day down 4.3 per cent. At one point, both were down more than 6 per cent.
It was the biggest single-day dive for the two since February 2016, when the fallout from a botched attempt to introduce a circuit-breaker mechanism after a market meltdown was still rattling investors.
Hong Kong shares, meanwhile, slumped to their biggest weekly loss since the global financial crisis.
“It’s bulls killing bulls”, said hedge fund manager Gu Weiyong about the stampede out of stocks by once-bullish investors.
“If 10-year, risk-free rates keep climbing toward 5 per cent, stocks with earnings multiples of 30 or more will become increasingly expensive, so they’re getting dumped by institutional investors,” said Gu, Shanghai-based chief investment officer at Ucom Investment Co.
The sell-off followed another battering for Wall Street, where the Dow suffered its second-heaviest daily points fall on record — the worst coming on Monday — after key US Treasury bond yields spiked fuelling the likelihood of higher borrowing costs.
After a blistering 2017 and January, markets worldwide have gone into a spasm in the past two weeks on fears that the booming global economy and rising inflation will lead to higher interest rates.
“There’s some big-money players that have really leveraged to the low rates forever, and they have to unwind those trades,” Doug Cote, chief market strategist at Voya Investment Management, told Bloomberg News. “They could be in full panic mode right now.”
Japan’s Nikkei fell 2.3 per cent and is now at levels not seen since mid-October, while Hong Kong dropped more than three per cent to put it on course to wipe out its 2018 gains. Shanghai dived 4.1 per cent to seven-month lows.
Sydney fell 0.9 per cent, Singapore shed 1.7 per cent and Seoul was 1.8 per cent off. Wellington, Manila and Taipei were also hammered.
A key trigger of the recent pullback was last Friday’s strong US jobs report that also showed rising US wage growth, fuelling speculation the Federal Reserve will lift rates more than the three times already expected this year.
At the same time, the European Central Bank is on the verge of ending its crisis-era stimulus, while the Bank of England warned on Thursday that rates will likely rise.
“The message from ECB and Fed speakers, not to mention the Bank of England is that rates will continue to climb because of the strength of the global economy,” said Greg McKenna, chief market strategist at AxiTrader.
With euro zone and British borrowing rates expected to go up, the euro and pound climbed against the dollar.
The greenback edged up against the yen but was still sharply down from Thursday’s levels in Asia as panicked investors sought out safety. The dollar fell to as low as 108.50 yen from almost 110 yen the day before, hit by a weak sale of US bonds, which jacked their yield back close to four-year highs.
However, many analysts are upbeat about the future owing to healthy economic conditions in the US and global economies as well as the positive outlook for corporate earnings after Donald Trump’s massive tax cuts in December.
There was also some good news from Washington where senators agreed a budget bill to avoid another extended government shutdown.
Energy firms around Asia are again taking a beating, with plunging oil prices adding to their woes.
Data showing surging US production has sent crude spiralling downward, with both main contracts about 10 per cent off their January highs, and offsetting a cap deal between Opec and Russia. —Reuters