Rout on Asian stock market

Asian stocks extend world rout amid rising yen while oil rallies

Japanese stocks headed for their worst week since 2008. Photo: Bloomberg

SMH,

12 February, 2016

The global equity bear market deepened in Asian trading, with Japanese stocks headed for their worst week since 2008 as anxiety over the world economy and central banks' ability to stem trading volatility fueled a rally in the yen. Oil rebounded from a 12-year low.

The Topix index returned from holiday to a 3.9 per cent slump in Tokyo, pushing the regional Asian benchmark toward its steepest weekly drop since gyrations in Chinese assets rocked financial markets at the start of the year.

US index futures signalled gains after losses there helped the MSCI All-Country Index cap a 20 per cent slide from its May record.

The yen was set for its best week in more than seven years, as gold traded close to a one-year high. US crude snapped a six-day tumble, rising from a 12-year low to trim what will still be a second straight weekly decline. Sovereign bonds solidified gains.

"We've entered a different phase in the market," Juichi Wako, a senior strategist at Nomura Holdings in Tokyo, said by phone.

"We're not simply in a risk-off mode, the market's fallen to the point of pricing in a recession in the US. The market is saying we're worried no matter what Yellen says and their reaction shows there can be no real relief until we can truly see what's happening in the US economy."

Investors ignored a second day of testimony from US Federal Reserve chair Janet Yellen, whose indication this week that the Fed won't rush to raise benchmark interest rates in the face of global fluctuations failed to stem a selloff in risk assets from bank shares to crude oil and emerging-market currencies.

After a move to negative rates largely failed to assuage anxieties last month, Japan stepped up its response, with Finance Minister Taro Aso saying regulators will respond to market volatility if necessary. Sweden's Riksbankcut rates further below zero Thursday, as central bankers struggle to address the turmoil that has held global financial markets in its grip since the start of the year.

Stocks

The Topix was poised to extend its lowest close since October 2014 as of 9.57am Tokyo time, headed for an 11 per cent slump this week. Those losses drove MSCI's Asia Pacific Index down 1.8 per cent, on track for a weekly decline of 5 per cent. While Japan resumed trading after a break Thursday, markets in mainland China, Taiwan and Vietnam remain closed for Lunar New Year holidays.

The Kospi index in Seoul slipped 0.6 per cent in its second day of trading this week, while Australia's S&P/ASX 200 Indexsank 0.8 per cent, headed for a drop in the week of 3.9 per cent. The S&P/NZX 50 Index fell 1.2 per cent in Wellington, set for its lowest close since October.

In Hong Kong, where markets resumed on Thursday after a three-day holiday, Hang Seng Index futures foreshadowed losses of at least 1.4 per cent on the Hang Seng and Hang Seng China Enterprises indexes. Shares in the city capped their worst start to a Lunar New Year since 1994 last session.

Futures on the Standard & Poor's 500 Index rallied 0.3 per cent as those on the Nasdaq 100 Index gained 0.2 per cent.

The Nasdaq 100 reversed a loss of 1.6 per cent Thursday, while the S&P 500 reduced a slump of as much as 2.3 per cent to close down 1.2 per cent in afternoon trade.

Crude pared its decline at the same time, with the Wall Street Journal reporting OPEC members may consider cooperating to curb output. Oil rose briefly above $US27 in electronic trading after settling at $US26.21, its lowest closing level since May 2003.

"Central bank policies and the uncertainty around their effectiveness is the big macro concern right now," said Leo Grohowski, who helps manage more than $US184 billion in client assets as chief investment officer of BNY Mellon Wealth Management in New York.

"There's a large disconnect right now between what the Fed might do and what they're saying and what the market is expecting. There's a lot of Fed uncertainty back on the table reminiscent of late last summer."

Bloomberg