Asia braces for more selling as deepening stock rout boosts yen

A businessman is watching the Tokyo stock index in the morning trade session on a display in Tokyo, Japan on Aug 21, 2015.
A businessman is watching the Tokyo stock index in the morning trade session on a display in Tokyo, Japan on Aug 21, 2015. PHOTO: EPA

WELLINGTON (BLOOMBERG) - Asian stocks looked set to continue the selloff that has pushed global equities to a 10-month low with regulators in the region moving to shore up their markets after a rout in the US gathered pace.

Futures on equity indexes from Japan to Hong Kong slid in most recent trading, with the Dow Jones Industrial Average and European stocks entering corrections at the end of last week. Middle Eastern shares suffered their worst day this year on Sunday, with emerging-market stocks languishing at a six-year low. The yen rose to a six-week high as the turmoil stoked demand for haven assets.

"Global financial markets are in the midst of a major risk event," Matthew Sherwood, head of investment strategy at Perpetual Ltd. in Sydney, which manages about US$22 billion, said in an e-mail. "The good news is that this stress is likely to see the Fed on hold for the near-term, but the bad news is that any policy stimulus in emerging markets is likely to be nothing more of a case of pushing on a piece of string."

Taiwan curbed short selling of borrowed stocks at the weekend, while China allowed pension funds to buy shares for the first time as policy makers seek to stymie a selloff that saw equities from Hong Kong to Indonesia enter bear markets on Friday. More than US$3 trillion has been wiped from the value of global stocks since China unexpectedly devalued the yuan, igniting a wave of concern over world growth amid angst over US monetary tightening plans and the downward trend in oil.

The yen climbed a fourth day, adding 0.1 per cent to 121.92 per dollar by 6:30 am Monday in Tokyo, touching its strongest level since July 10. Futures on Japan's Nikkei 225 Stock Average sank 1.8 per cent in Osaka at the end of last week, while contracts on indexes in Hong Kong were down at least 1.7 per cent. The kiwi fell 0.3 per cent and Australia's dollar held declines, with both countries reliant on commodity exports and trade with China.

MSCI's All-Country World Index slid to its weakest level since October 2014 on Friday and junk bond yields jumped to an almost three-year high with investors shunning riskier assets as the global selloff gained momentum. Treasuries posted their best weekly gain in five months and gold climbed to a more-than six-week high, while US oil sank below US$40 a barrel for the first time since 2009 amid signs the crude glut is expanding.

Saudi Arabia's Tadawul All Share Index joined some Asian benchmarks in a bear market Sunday, capping a more than 20 per cent slide from its 2015 high reached in April. Dubai's DFM General Index saw its steepest drop of the year, while Egypt's EGX 30 Index sank the most since November 2012, signaling more declines are likely for emerging-market equities, which closed at their lowest level since July 2009 in Friday trade. Israel's TA-25 Index was down the most in almost four years on Sunday.

Asian index futures signaled losses almost across the board, with contracts on Australia's S&P/ASX 200 Index sliding 2.1 per cent in most recent trading, and futures on the Kospi index in Seoul losing 1.8 per cent. South Korea's finance ministry said it will act "pre-emptively" in the market after the country's largest exchange-traded fund saw the biggest weekly withdrawal since its inception 15 years ago.

Futures on Hong Kong's Hang Seng Index sank 2 per cent after the gauge's 1.5 per cent slump on Friday left it down 21 per cent from its April peak, the common definition of a bear market. Contracts on the Hang Seng China Enterprises Index, which tracks mainland Chinese shares listed in the city, fell 1.7 per cent in recent trade, after the index sank 7.8 per cent last week, its worst weekly performance since September 2011.

FTSE China A50 Index futures were down 0.9 per cent in Singapore, and contracts on the Shanghai Shenzhen CSI 300 Index tumbled 3.3 per cent. Futures on Taiwan's Taiex index tumbled 2.9 per cent on Friday. Indonesian and Indian index futures declined at least 1.2 per cent.

Anxiety over China's faltering economy has fueled ructions in global markets a number of times this year, with a rout in the nation's equities sparking declines from Asia to the U.S. last month. The Shanghai Composite Index appeared to resume that downward trend last week, sliding more than 11 per cent for its worst slump since the start of July.

China's securities regulator also said over the weekend that it will penalize major shareholders in publicly traded companies for violating rules limiting stake sales. Major investors at 20 companies constitute the list of offenders, according to a statement from the body. It wasn't specified what the penalties would be.

Equity-market volatility surged in the US as the Standard & Poor's 500 Index slid 3.2 per cent Friday to cap its worst week since September 2011. The index is down more than 7 per cent from a record after sinking below a trading range that has supported it for most of the year. The Dow fell more than 500 points, and is down 10 per cent from its record high reached in May.

Before last week, US stocks had held their ground throughout 2015. The S&P 500 had stayed within a range roughly tracking its 50-, 100- and 200-day moving averages, boosted by signs the US economy is recovering and support from central banks. The benchmark index hadn't had a decline of more than 5 per cent all year.