SYDNEY (BLOOMBERG) - Asian stocks extended a global slump and volatility soared on Wednesday (Sept 14) after a report showed fund managers are hoarding more money in cash amid uncertainty over the trajectory of central bank stimulus globally.
The MSCI Asia Pacific Index lost 0.6 per cent to 136.36 as of 9:13 am in Tokyo. The measure is on course for a fifth day of declines after valuations this month climbed to the highest in more than a year and investors adjusted portfolios and forecasts to reflect prospects of less monetary stimulus globally.
In Tokyo, the Topix index fell 0.7 per cent after the Nikkei newspaper said the Bank of Japan is considering delving deeper into negative interest rates, a controversial move that hurt bank shares earlier this year.
Australia's S&P/ASX 200 Index slid 0.3 per cent and New Zealand's S&P/NZX 50 Index declined 0.4 per cent. Markets in South Korea are closed for the remainder of this week for holidays.
Volatility is returning to equities following an unprecedented stretch of calm, with oil joining the rout after the International Energy Agency predicted that oversupply will extend into next year.
Traders are looking for secure positions with Chinese markets closed for holidays Thursday and Friday and investors counting down to meetings of the BOJ and the Federal Reserve next week. Fund managers overseeing US$579 billion upped their average cash holdings to levels near to the highest since 2001, a Bank of America survey showed.
"Investors are waking up to the fact that valuations are high and these record-low interest rates won't be with us forever," Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about US$7.2 billion, said by phone. "There's a lot of event risk coming up with the US election, several central bank meetings and oil prices are still looking shaky. Markets had become dangerously reliant on central bank support and this is a bit of a wake-up call that this won't always be the case."
Stock markets have been whipsawed in recent weeks amid opposing views from Federal Reserve officials, who meet next week. Japan's central bank is also scheduled to meet next week, with just over half of economists surveyed by Bloomberg forecasting an expansion of monetary stimulus. Others point to November, December and next year. The central bank will place further negative interest rates at the focus of policy, now that its expansion of asset buying is reaching a limit, the Nikkei newspaper reported, without attribution.
Futures on Hong Kong's Hang Seng Index dropped 0.7 per cent in most recent trading, while contracts on the FTSE China A50 Index sank 0.2 per cent. Chinese stocks traded in Hong Kong posted their biggest two-day loss since February on Tuesday amid reduced chances of economic stimulus and as the suspension of buying through a cross-border equity link took a key investor bloc out of the market.
E-mini futures on the S&P 500 added 0.1 per cent after the underlying gauge slumped 1.5 per cent on Tuesday. The CBOE Volatility Index surged 18 per cent to the highest since June.