A screen displays the Nikkei 225 Stock Average figure at the Tokyo Stock Exchange (TSE), operated by Japan Exchange Group Inc. (JPX), in Tokyo, Japan. Photographer: Akio Kon/Bloomberg
TOKYO: 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 yesterday, with those in export-reliant markets of Japan, Taiwan and South 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 (TSMC) 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 United States 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, fuelling 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.”
The Topix and Nikkei 225 both ended down more than 12% yesterday as investor confidence crumbled on a surge in the yen, tighter monetary policy and broader concern about the United States 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 labour market report a month out,” said Chetan Seth, an Asia-Pacific equity strategist at Nomura Holdings Inc.
Meanwhile, the MSCI Emerging Markets Index dropped 4.2% as of 8:42am in London, the biggest loss since February 2022.
That took the gauge’s two-day decline to 6.6%, the worst since the Covid panic of March 2020.
Yesterday’s losses pushed the benchmark to erase its 2024 gains.
Apart from Federal Reserve factor, there is also worry that the artificial-intelligence stocks may have run up further than their earnings potential justifies.
The bearishness is hitting emerging markets via the high-technology sector as well as industries reliant on global economic growth such as commodities.
“It’s a typical risk unwind trade that we are seeing in emerging markets today, more concentrated in tech-dominated markets like Taiwan and South Korea,” said Rajat Agarwal, equity strategist at Societe Generale SA.
“A risk off trade starts from the most-crowded sector and then broadens out.
“What is to be seen is the extent of the selloff after this sharp correction.” — Bloomberg
