Asian markets sank yesterday following the worst losses on Wall Street in seven months, with investors gripped by renewed fears over emerging economies days ahead of a crucial US Federal Reserve policy meeting.
Japan’s Nikkei, which was the best performer last year, continued its downtrend as the yen remained elevated against the US dollar, while shares in developing countries also suffered selling pressure.
Tokyo tumbled 2.51 percent, or 385.83 points, to 15,005.73, while Seoul fell 1.56 percent, or 30.22 points, to 1,910.34. Hong Kong shares sank 473.96 points, or 2.11 percent, to 21,976.10 and Chinese shares ended down 21.09 points, or 1.03 percent to 2,033.30.
Taipei dipped 1.58 percent, or 135.74 points, to 8,462.57 and Wellington was down 0.41 percent, or 19.90 points, at 4,853.79. Sydney was closed for a public holiday.
“Capital is fleeing equities generally,” said Hiroichi Nishi, SMBC Nikko Securities’ general manager of equities.
“For Japan, the combination of weaker US stocks, a weaker [US] dollar, and heightened fears over a slowing of global economic growth will be enough to send stocks down,” he said.
In New York on Friday, the Dow sank 1.96 percent, the biggest percentage point fall since June last year, while the S&P 500 plummeted 2.09 percent and the NASDAQ lost 2.15 percent.
US investors ran for cover on Friday as an 11 percent slump in the Argentine peso against the US dollar refueled concerns about emerging market currencies.
Those fears were exacerbated by data last week indicating manufacturing activity in China — a key driver of global growth — had contracted this month.
“There is a fear that there is going to be a contagion in emerging-market currencies,” Maybank Kim Eng head of sales trading Kevin Foy said.
The growing pessimism sent investors to seek out safer, lower-return assets, particularly the yen, which is considered a safe haven in times of economic uncertainty.
In afternoon Asian trade yesterday, the US dollar was at ¥102.44 and the euro fetched ¥140.20. The euro bought US$1.3683 compared with US$1.3678 on Friday in New York.
Among emerging market currencies the US dollar rose to 12,215 Indonesian rupiah from 12,180 rupiah on Friday, while it was also at 62.68 Indian rupees from 62.16 rupees, at 45.41 Philippine pesos from 45.32 pesos, and 32.93 Thai baht from 32.86 baht.
The yen’s strength yesterday came despite data showing Japan’s trade deficit hit a record US$112 billion last year.
“A number of issues have all come together,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital in Sydney.
Problems “have been bubbling away for a while now, but when they hit the screen at the same time, it appears like there is a problem in emerging markets,” he said.
Yet Credit Suisse research analyst Hiromichi Shirakawa added that markets were not in a panic like in 2008 when the collapse of Lehman Brothers set off a global financial crisis.
“The euro’s [stability] is working as a buffer and easing pressure on the yen to rise further,” Shirakawa said.
Traders will now be looking to this week’s meeting of the US Federal Reserve to see if it announces any further cuts to its stimulus program.
The Federal last month said it would reduce its bond-buying by US$10 billion a month from this month to US$75 billion, citing a pick-up in the economy.
However, the move has raised fears of a capital flow from developing countries as investors repatriate their cash to the West.
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