Asian stocks tumble, yen jumps after North Korea nuclear test; STI down 1%

A woman counting Japanese 10,000 yen notes. Investors turned to haven assets after North Korea tested a nuclear bomb on Sunday, sending the yen, gold and Treasury futures higher.
A woman counting Japanese 10,000 yen notes. Investors turned to haven assets after North Korea tested a nuclear bomb on Sunday, sending the yen, gold and Treasury futures higher.PHOTO: REUTERS

SYDNEY/SEOUL (BLOOMBERG) - Asian stocks fell on Monday (Sept 4) as investors turned to haven assets after the dictatorship tested a nuclear bomb on Sunday, sending the yen, gold and Treasury futures higher.

The MSCI Asia Pacific Index was on track for the biggest drop since the tension between the US and North Korea flared up following Donald Trump's "fire and fury" comment in early August. The biggest declines were in Tokyo, Seoul and Singapore, with more moderate reactions elsewhere in the region.

Japan's Topix index lost as much as 1.2 per cent and was 1.1 per cent lower as of 2:13pm in Tokyo, while South Korea's Kospi index lost 0.8 per cent and the S&P/ASX 200 Index in Sydney declined 0.3 per cent.

Singapore's Straits Times Index was down 1 per cent to 3,243.46 at around 2:30pm.

The Hang Seng Index in Hong Kong fell 0.5 per cent. Gauges rose in China and the Philippines.

Contracts on the S&P 500 slipped 0.3 per cent to 2,465.75. The underlying index rose 0.2 per cent on Friday, while the Dow Jones Industrial Average climbed 0.2 per cent.

The MSCI Asia Pacific Index fell 0.5 per cent, poised for its worst decline since Aug 11.

The yen and the Swiss franc posted the biggest gains among major currencies in early Asian trading after North Korea said it successfully tested a hydrogen bomb with "unprecedentedly big power."

The yen climbed 0.4 per cent to 109.79 per dollar, while the Swiss franc was up 0.4 per cent. The euro climbed 0.2 per cent to US$1.1882.

The Korean won dropped 0.8 per cent to 1,131.46 per dollar. The Australian dollar fell 0.2 per cent to 79.62 US cents. The Bloomberg Dollar Spot Index slipped 0.1 per cent.

US President Trump threatened to increase economic sanctions and halt trade with any nation doing business with Kim Jong Un's regime, and his defense chief said the US has "many military options." The nuclear test, the first since Trump took office, is a new hurdle for markets that have proven resilient to recent bouts of tension on the Korean peninsula. An early selloff in US equity-index futures last Tuesday after North Korea's launching of a missile over Japan was erased by the close of cash trading.

"If North Korea ratchets up provocations again to protest sanctions and pressure from the international community, tensions on the Korean Peninsula could escalate further to a different level from previous cases," said Chang Jaechul, chief economist at KB Securities Co. "Still, a possibility of a military clash is low on the peninsula."

Investors are choosing to hold more cash in the face of increasing geopolitical instability. Nader Naeimi, who heads a dynamic investment fund at AMP Capital and helps manage about US$110 billion, has about 30 per cent of his holdings in cash, while Chicago-based Ariel Investments is holding more cash versus its target in the event a pullback creates buying opportunities.

"We've not seen the futures sell off in any sharp way. It seems to suggest that there is a belief, maybe that's hope, that rational heads will prevail," Mellody Hobson, president of Ariel, which oversees more than US$11 billion, told Bloomberg Television on Monday. "The long-term story is very positive. My belief is that this will work itself out and I am never a believer in overreacting to any news."

Treasury 10-year futures contract for December delivery rose as much as 11/32 to 126 30/32.

Yields on Australian 10-year bonds declined about two basis points to 2.64 per cent.

West Texas Intermediate crude added 0.2 per cent to US$47.39 a barrel.

Gold rose 0.8 per cent to US$1,335.03 an ounce.