Asia becomes epicentre of market fears over slowdown in growth

The growing jitters in Asia come as investor concerns shift from runaway inflation to an early withdrawal of stimulus by central banks. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Asia is emerging as the epicentre for investor worries over global growth and the spread of coronavirus variants.

While their peers in the United States and Europe remain near record highs, Asian stocks have fallen back in recent months amid slowing Chinese economic growth and a glacial roll-out of vaccines. The trend accelerated on Friday (July 9) with the benchmark MSCI Asia-Pacific Index briefly erasing year-to-date gains for the second time in as many months.

"Asia was seen as the poster child in pandemic response last year, but this year, the slow vaccination roll-out in most countries, combined with the arrival of the Delta variant, means another lost year," said Mr Mark Matthews, head of Asia research with Bank Julius Baer & Co in Singapore.

"I suspect Asia will continue to lag as long as vaccination roll-outs remain at their relatively sluggish levels and high daily new Covid-19 counts prevent them from lifting mobility restrictions."

The growing jitters in the region come as investor concerns shift from runaway inflation to an early withdrawal of stimulus by central banks. China's authorities signalled earlier this week that they may soon unleash more support for the economy, suggesting the world's fastest pandemic recovery may be weaker than it appears.

A fresh regulatory crackdown on Chinese tech stocks this week has also impacted investor sentiment in the region. The Hang Seng China Enterprises Index fell briefly into a technical bear market on Friday, led by weakness in the sector.

While Asia bore the brunt of the retreat in global equities, havens in other asset classes from Treasuries to the yen have rallied, and the rotation towards economically sensitive cyclical stocks from their high-priced growth counterparts continued to unwind.

"It's a sign of how challenging the reopening process is," Mr Marvin Loh, State Street senior global market strategist, said in an interview with Bloomberg TV.

"What the PBOC (People's Bank of China) is going through, as well as these variants that keep popping up around the world, shows it's going to be an uneven process. Maybe a normalisation tightening policy is not necessarily going to be as fluid."

Covid 19 remains a key challenge. In Japan, Tokyo has declared a renewed state of emergency to combat the resurgent virus, banning spectators from the Olympics and pushing the Nikkei 225 Stock Average towards a correction.

South Korea is intensifying social distancing measures in Seoul, while Indonesia is battling a virus resurgence that has crippled its health system.

"Asian equities are being particularly impacted by the rebound in coronavirus cases in the region, fears about the impact of that on regional growth and concern that we may now have seen the best of the rebound globally," said Mr Shane Oliver, head of investment strategy with AMP Capital Investors in Sydney. "Asian shares may have led the way on this but coronavirus concerns may also weigh on global shares generally."

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.