Asian stocks headed for the biggest drop since June, following a rout in US shares, as policy officials at central banks signaled a reluctance to extend stimulus.
The MSCI Asia Pacific Index dropped 2.1 percent to 137.38 as of 5:06pm in Tokyo, as benchmarks in Australia, Hong Kong and New Zealand all sank more than 2 percent.
The losses followed a 2.4 percent tumble on the S&P 500 on Friday last week, as volatility surged after Federal Reserve Bank of Boston President Eric Rosengren said the economy could overheat if they waited too long to raise interest rates, spurring bets on a hike by the end of the year.
All eyes now turn to US Federal Reserve Governor Lael Brainard, who was yesterday to speak in Chicago in what is to be the final appearance by a Fed official before its policy meeting next week.
Rosengren’s comments propelled the probability of a rate increase by December to 60 percent, coming a day after European Central Bank President Mario Draghi surprised markets by playing down the prospect of further stimulus.
“Central banks are reluctant to add additional stimulus and that’s causing a lot of concern,” Niv Dagan, executive director at Peak Asset Management LLC, told Bloomberg Radio.
“We expect additional downside in the near term. You want to wait and see and remain cautious,” he said.
The TAIEX slid 1.2 percent.
Hong Kong’s Hang Seng Index slumped 3.4 percent, while the Hang Seng China Enterprises Index of mainland Chinese firms listed in the territory lost 4 percent.
Japan’s TOPIX fell 1.5 percent, while Australia’s S&P/ASX 200 lost 2.2 percent and South Korea’s KOSPI declined 2.1 percent.
New Zealand’s S&P/NZX 50 Index slid 2.5 percent, the most in five years after reaching a record high last week.
The abrupt selloff and surging volatility is testing investors’ nerves following an extended period of relative calm before Friday.
The CBOE Volatility Index, a measure of price turbulence known as the VIX, soared 40 percent on Friday, the most since the Brexit vote. That took the measure above its average level this year.
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