Markets fall from Sydney to Shanghai as analyst warns that broad selloff could turn into a ‘capitulation’

This article is more than 1 year old

This article is more than 1 year old

Shares in Asia Pacific have plunged into bear market territory and wiped billions off the values of companies as one analyst warned that the losses could be a harbinger of a wholesale “capitulation”.

After the worst day for tech stocks on Wall Street for seven years, markets were in retreat from Sydney to Shanghai as concerns about the global economy and rising borrowing costs were compounded by local factors.

In Australia the benchmark ASX200 closed down 164 points or 2.8% as it suffered its fifth straight day of losses. In Japan the Nikkei was off 3.2% and has now dropped around 13% from a 27-year peak of 24,448.07 touched in early October.

Dow Jones falls 600 points as market volatility continues –as it happened Read more

A broad indicator of shares in the region – the MSCI Asia Pacific index – has now fallen 20.3% from the year-to-date high set on 29 January, representing an official bear market. The Vix “fear” index, which measures volatility across the market, has spiked sharply this week and was up 21% overnight.

“We haven’t thought that selling would be this steep. This sell-off makes us think the market may be set for capitulation,” said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Center.

The contagion spread into the European trading session. Britain’s FTSE 100 fell to a seven-month low in early trading, down over 70 points at 6885.

“What makes the latest volatility more troubling is that it’s been difficult to identify one specific cause,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management, adding:

There are many symptoms but no one can diagnose the illness. Geopolitics, rising bond U.S. bond yields, a more hawkish looking U.S. Federal Reserve (the Fed), slowing Chinese growth, a strong U.S. dollar and the already well known problems in some emerging economies have all contributed to the market unease.

Mohamed A. El-Erian (@elerianm) ...and the VIX spiked to over 26, a level last seen in February.This similarity obfuscates two (related) differences. First, less enthusiasm on the part of #investors to buy the dip. Second, accumulated evidence that the #Fed no longer has the #markets back covered as in the past pic.twitter.com/23W7EhdOfe

China’s central bank decided it had seen enough and intervened for the fifth day running by injecting 100bn yuan ($14bn) into open market operations. It brings the total for the past five days to 540bn yuan, or $77bn and aims to head off a liquidity squeeze.

Chinese stock markets have struggled under the weight of a slowdown in the economy and fears about US tariffs on Chinese goods. The Shanghai Composite index slumped 2.5% in the first minutes of trade before paring losses to 1.3%. In Hong Kong the market was off 1.8%.

Matt Burgess 薄哲思 (@MBurgessSyd) Bad day for Aussie stocks with #ASX200 down to lowest in a year. Now on longest losing streak since Sept. 10. Financials have entered a bear market. #ausbiz #auspoll @BloombergAU @markets pic.twitter.com/5XwTuUiPE5

(((The Daily Shot))) (@SoberLook) Chart: South Korea's stocks in bear-market territory - pic.twitter.com/1mkOs2whpf

The gloomy mood was spread across the region, with South Korea’s stock market entering a bear market after growth in the third quarter came in at a lower-than-expected 2%. The export-driven economy is seen as a good indicator of the health of global trade so the poor figures saw stocks on the Kospi index fall 2.4%.

The US dollar continued to gain strength heaping pressure on sterling, which fell to $1.289, the euro (down slightly at $1.14) and the Australian dollar which was buying US70.7c.

“The fear is palpable in stock markets at the moment,” Greg McKenna, an independent markets strategist in Australia, said on Thursday. “This could get much worse before it gets better. Collapses happen after falls. That’s the danger.”

Thursday’s nervous selloff comes after US stocks fell overnight, where a rout in technology stocks saw the largest daily decline on the Nasdaq since 2011. The falls confirmed a correction for the Nasdaq and erased the Dow and S&P 500’s gains for the year.

Charlie Bilello (@charliebilello) If the month ended today, it would be the worst monthly decline for the S&P 500 Total Return Index since February 2009: -8.8%. $SPX pic.twitter.com/9rWxn1k8qD

“Weak US housing data, mixed corporate earnings results, trade war fears and concerns regarding a slowing global economy all contributed to the sell-off,” Sydney-based Rivkin Securities said on Thursday.

Australia’s financial sector was one of the worst hit. The embattled wealth management firm AMP was the worst performer on the market as its shares fell nearly 25%.

Energy, resources and technology stocks were also affected as the dive continued the ASX’s worst month in more than three years. The market is now down more than 8% for October – and 10% since August – meaning it is officially in correction territory.

Faltering consumer sentiment, low wage growth and falling house prices are compounding the impact of global factors. On Thursday, householders and property developers were warned that the country’s housing market should prepare for a downturn of a scale not seen for 30 years.

The consultancy Ernst & Young said in a report that it does not expect a crash but said falling prices and tighter credit meant a sustained period of uncertainty, which will cloud future developments and projects.

“Unlike previous downturns, interest rates look set to remain low. While we don’t envisage a crash, it has become much harder for homebuyers and developers to secure finance,” said Richard Bowman, real estate partner at EY Australia.

Stock market investors are finally facing up to global turmoil Read more

Jonathan Chan, of CMC Markets in Sydney, said Australia could benefit from further Chinese stimulus but would also feel the brunt of a US-China trade war. “The aftermath of US-China trade war is slowly surfacing in the US corporate earnings reports, leading to a global risk-off tone,” he said on Thursday. “Investor buying in Australia may be limited but a bounce is possible if more corporations reveal a stronger sales and revenue number.”