Global stocks fell yesterday, with Asian shares down by the most in nine months, as a rout in global bond markets sent yields flying and spooked investors amid fears the heavy losses suffered could trigger distressed selling in other assets.
MSCI’s Emerging Markets equity index suffered its biggest daily drop in nearly 10 months and was 2.7 percent lower, while European shares opened in the red, with the STOXX 600 down 0.7 percent, recovering from heavier losses earlier in the session.
The MSCI World equity index, which tracks shares in 50 countries, was 0.9 percent lower and heading for its worst week in a month.
Photo: AP
Asia saw the heaviest selling, with MSCI’s broadest index of Asia-Pacific shares outside Japan sliding more than 3 percent to a one-month low, its steepest one-day percentage loss since May last year.
For the week the index is down more than 5 percent, its worst weekly showing since March last year, when the COVID-19 pandemic had sparked fears of a global recession.
“It is not the beginning of a correction in equities, more a logical consolidation as price to earnings ratios were excessive,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners.
“What is reassuring is that Q4 2020 earnings were good and earnings per share suprisingly good, and that means down the road we should get back to growth,” he said.
Yesterday’s carnage was triggered by a whiplash in bonds.
The scale of the sell-off prompted Australia’s central bank to launch a surprise bond-buying operation to try and staunch the bleeding.
The European Central Bank (ECB) is monitoring the recent surge in government bond borrowing costs, but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper.
Ten-year German government bond yields were down nearly 4 basis points at minus-0.267 percent, and French and Austrian bonds were back in negative territory.
Yields on the 10-year US Treasury note eased back to 1.4530 percent from a one-year high of 1.614 percent on Thursday.
“Bond yields could still go higher in the short term though, as bond selling begets more bond selling,” AMP head of investment strategy Shane Oliver said.
“The longer this continues the greater the risk of a more severe correction in share markets if earnings upgrades struggle to keep up with the rise in bond yields,” he said.
Markets were hedging the risk of an earlier rate hike from the US Federal Reserve, even though officials this week vowed any move was long in the future.
Fed fund futures are now almost fully priced for a rise to 0.25 percent by January 2023, while eurodollars have it discounted for June next year.
Even the thought of an eventual end to super-cheap money sent shivers through global stock markets, which have been regularly hitting record highs and stretching valuations.
“The fixed income rout is shifting into a more lethal phase for risky assets,” Westpac head of rates strategy Damien McColough said.
“The rise in yields has long been mostly seen as a story of improving growth expectations, if anything padding risky assets, but the overnight move notably included a steep lift in real rates and a bringing forward of Fed liftoff expectations,” he said.
Japan’s Nikkei shed 4 percent, its biggest single-day fall since April last year, and Chinese blue chips joined the retreat with a drop of 2.4 percent.
Overnight, the Dow Jones Industrial Average fell 1.75 percent, while the S&P 500 lost 2.45 percent and the NASDAQ 3.52 percent, the biggest decline in almost four months for the tech-heavy index.
Tech darlings all suffered, with Apple Inc, Tesla Inc, Amazon.com Inc, Nvidia Corp and Microsoft Corp the biggest drags.
The surge in US Treasury yields caused ructions in emerging markets, which feared the better returns on offer in the US might attract funds away.
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