Asian stocks sank, with the regional benchmark index headed for the biggest drop since September 2011, as Japanese shares plummeted after preliminary Chinese manufacturing data unexpectedly signaled a contraction and the yen strengthened.
Japan’s Nikkei 225 Stock Average and the broader TOPIX both fell more than 6 percent, the most since the aftermath of the 2011 earthquake, and futures trading in Osaka was suspended.
Every Asian market outside Sri Lanka retreated after US Federal Reserve Chairman Ben Bernanke on Wednesday said a premature withdrawal of quantitative easing would put the US economic recovery at risk.
The MSCI Asia Pacific Index declined 3.4 percent to 138.59 as of 6:28pm in Tokyo, with about 12 shares falling for each that rose. The measure rose 11 percent this year through Wednesday as Japanese shares surged amid record stimulus by the Bank of Japan and signs of improvement in the US economy.
“The market has been looking for an excuse for a correction,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd, which oversees US$126 billion. “Bernanke’s comments and China’s PMI [Purchasing Managers’ Index] data provided the trigger for a sell-off. Technically, Japanese shares have been overbought and were vulnerable for a correction.”
Japan’s Nikkei 225 plunged 7.3 percent and Topix slumped 6.9 percent, their biggest daily drop since March 15, 2011.
The Nikkei Volatility Index jumped 58 percent to 43.74, the biggest advance since March 2011, according to data compiled by Bloomberg. The 50-day volatility for the Topix climbed to 28.83, the highest since May 2011, the data showed.
“There’s a lot of profit-taking going on,” said Tomomi Yamashita, a fund manager who helps oversee the equivalent of US$5 billion at Shinkin Asset Management Co in Tokyo. “When volatility is high, investors want to take off risk.”
Hong Kong’s Hang Seng Index dropped 2.5 percent while China’s Shanghai Composite Index fell 1.2 percent. South Korea’s Kospi Index decreased 1.2 percent. Australia’s S&P/ASX 200 Index slid 2 percent, while New Zealand’s NZX 50 Index lost 0.5 percent. The TAIEX retreated 1.9 percent.
China’s manufacturing is contracting this month for the first time in seven months, adding to signs that economic growth is losing steam for a second quarter. The preliminary reading of 49.6 for a PMI released yesterday by HSBC Holdings Plc and Markit Economics compares with a final 50.4 for last month. The number was also below the 50.4 median estimate in a Bloomberg News survey of 13 analysts.
A reading below 50 indicates contraction.
“Bernanke is making it very clear to markets that at some point they will be likely to reduce the level of bond purchases and that’s an important point for the market to digest,” said Angus Gluskie, managing director at Sydney-based White Funds Management, which oversees more than US$350 million. “He’s saying we’re going to wind this down at some point, but not with the economy the way it is.”
China’s economic planning agency yesterday outlined details of measures aimed at boosting the economy, but refrained from major spending initiatives. The piecemeal nature of the plans announced yesterday appeared to disappoint investors who were hoping for bolder moves, and the Shanghai Composite Index gave up a 10 percent initial gain as markets reopened after a weeklong holiday to end 4.59 percent higher, while Hong Kong’s Hang Seng Index dived 9.41 percent. Chinese National Development and Reform Commission Chairman Zheng Shanjie (鄭珊潔) said the government would frontload 100 billion yuan (US$14.2 billion) in spending from the government’s budget for next year in addition
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