Global stock rout snowballs in Asia as grim China factory survey deepens growth fears

Asian stocks fell early on Friday as fears took hold of a China-led deceleration in global growth.
Asian stocks fell early on Friday as fears took hold of a China-led deceleration in global growth.PHOTO: EPA

SINGAPORE (BLOOMBERG, REUTERS) - Asian stocks tumbled with US index futures, oil and emerging currencies as a gauge of Chinese manufacturing plunged to the lowest since 2009, underscoring the weakness in global demand. Safe-haven gold and the yen extended gains.

Benchmark gauges in Hong Kong, Taiwan and Indonesia headed for bear markets, dragging down the MSCI Asia Pacific Index by 2.4 per cent at 2:34 pm in Tokyo. Standard & Poor's 500 Index futures dropped 0.5 per cent after the gauge fell the most in 18 months. Gold is set for its biggest weekly advance since January as the selloff in emerging markets spreads. US oil headed for an eighth straight weekly slide, its longest streak since 1986.

"We've been expecting a correction and it looks like we're getting one," said Mark Lister, head of private wealth research at Craigs Investment Partners Ltd. in Wellington, which manages about US$7.2 billion. "The S&P had held up, now it's back in negative territory. The whole world's looking a little bit sad. China still looks really worrying on a number of fronts."

The mood in markets, already soured by overnight weakness on Wall Street, darkened further on riday (Aug 21) after a grim reading of China's factory activity.

The Caixin/Markit manufacturing index showed activity in China's factory sector shrank at its fastest pace in almost 6 1/2 years in August as domestic and export demand dwindled. That, coming on the heels of weaker-than-expected data in July, stoked fears of a slowdown in the world's second-biggest economy.

China's decision to devalue its currency amid slowing growth and the prospect of higher US interest rates had already spurred a wave of selling across emerging markets and commodities.

The MSCI Asia Pacific Index is heading for its biggest weekly loss since 2011. The MSCI All-Country World Index has lost 3.1 per cent this week.

Hong Kong's Hang Seng Index dropped 2.3 per cent, taking declines since an April high beyond 20 per cent. Taiwan's benchmark gauge dropped 2.7 per cent to finish in a bear market and the Jakarta Composite Index slid 2.1 per cent.

The Shanghai Composite Index slumped 3 per cent, taking the week's loss beyond 10 per cent. The gauge briefly erased all its gains since the government began efforts to prop up the market in July.

The Straits Times Index was trading down 59.57 points or 1.98 per cent at 2,950.21 at about 2pm.

About US$2.2 trillion was wiped from the value of global stocks in the first four days of the week. In the US, the S&P 500 slipped out of the 70-point trading range it has been stuck in since March, falling below 2,040 to as low as 2,035.73 on Thursday. It closed below its 200-day moving average for the first time since July 9.

The Federal Reserve will decide whether to raise interest rates for the first time since 2006 on Sept. 18. Bets on liftoff taking place next month have been wound back since the last meeting as oil slumped, China cut the value of its currency and the Fed's own minutes showed concern among policymakers about the pace of inflation.

The decision is "only four weeks away and the world's looking pretty vulnerable," said Stephen Halmarick, Sydney- based head of economic and market research at Colonial First State Investment Ltd., which oversees about $150 billion. "If they delay you might see some support coming through to US. markets because then the dollar probably comes down a bit from where it is now and some of those pressure points may be relieved, at least in the short term."

The bloodletting among emerging-market currencies shows no signs of abating, with a measure of 20 developing economy currencies set to extend its longest streak of weekly losses since 2000 after Vietnam and Kazakhstan devalued. The Korean won weakened 0.8 per cent Friday, its fifth drop in six days, while Malaysia's ringgit sank 1.3 per cent to a new 17-year low. China's yuan fell the most in more than a week.

Redemptions from emerging-market funds picked up in the week ended Aug. 19, EPFR Global said, citing preliminary data. Net outflows from bond funds climbed to the highest level since the first quarter of 2014 and those from equities at a one-month high. China bond funds had record redemptions and more than US$4 billion was pulled from Asia excluding Japan stock funds.

West Texas Intermediate crude fell 1.3 per cent to US$40.77 a barrel. Copper fell 0.9 per cent and is on its way to a seventh straight weekly loss. The Bloomberg Commodity Index slipped 0.3 per cent, taking the week's loss to 1.5 percent. The gauge has dropped 13 per cent since the end of June and on Wednesday closed at a 13-year low.

Gold for immediate delivery climbed 1.4 per cent to US$1,168.39 an ounce, the highest level since July 7, before trading at US$1,163.36 by 12:22 pm in Singapore, according to Bloomberg generic pricing. The metal has surged 4.3 per cent this week and is set for the biggest such gain since January.