Asian stock losses deepen as Abe stimulus disappoints amid growth jitters

Pedestrians walk past an electric quotation board displaying the Nikkei key index of the Tokyo Stock Exchange in Tokyo on Aug 3.
Pedestrians walk past an electric quotation board displaying the Nikkei key index of the Tokyo Stock Exchange in Tokyo on Aug 3. PHOTO: AFP

WELLINGTON/SINGAPORE (BLOOMBERG) - Asia stocks extended their drop on Wednesday (Aug 3) as oil's selloff revived concerns over global growth and after Japan's fiscal stimulus package fell short of what some investors had expected. High-yielding currencies retreated.

Japan's Topix index slipped for a third day after the yen, which typically moves at odds with local shares, jumped 1.5 per cent last session. Crude halted losses below US$40 a barrel before an update on US oil inventories, while gold was near its highest price since July 11. The Korean won weakened with the Malaysian ringgit as New Zealand's currency also slipped.

A four-week advance in global equities has faltered as crude descended into a bear market. With investors looking to central banks and governments around the world to shore up growth, Japan's announcement on Tuesday that it would boost spending by 4.6 trillion yen (S$60.9 billion) in the current fiscal year failed to ignite optimism that Prime Minister Shinzo Abe can revive the world's third-biggest economy.

"After all the build-up, it's a disappointment," Shane Oliver, a global investment strategist at AMP Capital Investors Ltd. in Sydney, which manages more than US$110 billion, said by phone, referring to Japan's fiscal stimulus announcement. This will be negative for Asian stocks Wednesday, "reflecting the negative response we've already seen in the U.S. and Europe overnight," he said.

The MSCI Asia Pacific Index sank 1.2 per cent as of 10:50 am Tokyo time, set for its lowest close in almost a week, as all 10 industry groups declined.

Australia's S&P/ASX 200 Index slipped 0.8 per cent amid losses in banks. The Kospi index in Seoul slid 1 per cent. Hong Kong's Hang Seng Index sank 1.6 per cent as trading resumed after the market was shut on Tuesday because of a storm. The Topix lost 1.4 per cent, and is down more than 3 per cent this week.

"A risk-off mood is coming to the forefront," said Chihiro Ohta, a senior strategist at SMBC Nikko Securities Inc. in Tokyo. "In Japan, where many companies, especially in the auto sector, are easily affected by currency moves, the strength in the yen weighs on the overall profits for listed firms."

E-mini futures on the S&P 500 retreated 0.1 per cent to 2,151.25 after the underlying index slipped 0.6 per cent on Tuesday, led lower by retailers and industrial stocks. The S&P 500 Index notched its first back-to-back declines since the aftermath of the UK's decision to quit the European Union.

The yen weakened 0.3 per cent to 101.24 per dollar, after touching 100.68 on Tuesday, its strongest level since July 11.

The government's plan incorporates 13.5 trillion yen of fiscal measures - including 7.5 trillion yen in new spending starting this year, and 6 trillion yen in low-cost loans.

The Bloomberg Dollar Spot Index, a gauge of the US currency against 10 major peers, added 0.1 per cent, after sliding 0.6 per cent in the previous session amid waning bets on the Federal Reserve raising interest rates in 2016.

Bitcoin tumbled after one of the largest exchanges halted trading because hackers stole about US$65 million of the digital currency. Bitcoin slumped 4.2 per cent against the dollar, bringing its three-day drop to 18 per cent.

Australian notes due in a decade yielded 1.92 per cent, up 10 basis points after they slid to an all-time low on Tuesday. The Reserve Bank of Australia delivered its second quarter-point cut for 2016 on Tuesday, taking the cash rate to a record-low 1.5 percent, as expected by a majority of economists and inves tors.

Bill Gross, the former chief investment officer of Pacific Investment Management Co, reiterated his warning on government debt Tuesday after yields touched all-time lows in the past month. The danger of the unprecedented rally, as Mr Gross sees it, is that any reversal will be painful for investors.

West Texas Intermediate crude added 0.8 per cent to US$39.81 a barrel, after falling 5 per cent over the past two sessions. Government data out Wednesday is forecast to show crude and motor fuel supplies decreased.