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Global markets sink, suggesting stock rout will go on

[HONG KONG] The market sell-off in the United States ricocheted across the world Tuesday, as investors from Tokyo to Hong Kong to Seoul voted with their feet and futures markets indicated the US stock market could be in for another tough day.

By midday in Asia, Japanese shares were down more than 6 per cent, while markets in Hong Kong and Taiwan dropped more than 4 per cent. The selling was broad, hitting companies of all sizes across many industries. An index of Chinese companies listed in Hong Kong at one point dropped more than 6 per cent.

Market analysts digesting the numbers from Asia said they didn't expect the selling to let up anytime soon. And Europe and the United States looked poised for similar selling on Tuesday.

As of midday in Asia, futures that track major New York stock market indexes signaled a drop of nearly 3 per cent.

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Wall Street's fear gauge - known as the VIX index - shot up to its highest level since summer 2015, when a market sell-off in China triggered a global sell-off in markets. The index tracks overall market volatility.

Investors have mostly been spooked by concerns about the potential for rising inflation in the United States. Still, the share run-up of recent months has been global, and experts said a number of markets elsewhere were also due for a readjustment.

This time around, the moves were triggered by concerns of rising inflation in the United States. In China, markets were overheated after a steep rise since the start of this year, said David Cui, China equity strategist at Bank of America Merrill Lynch.

"Given how bullish the market has been positioning, there could be a reasonable period of adjustment," Mr Cui said, referring to Chinese stocks.

"It's not going to be a two-day phenomenon," he added. "If you take a few-months view, there is a chance this is the start of a decent correction." Several risks loom on the horizon for China and other Asian markets. Chinese economic growth could take a hit if President Donald Trump's criticism of China's trade practices becomes a trade war.

A broadly strengthening US dollar would likely hit export-oriented countries like China that widely benefited from a weaker dollar last year, Mr Cui said.

Even before Monday's sell-off there had been a steady flow of money out of emerging markets in Asia. Since Jan 31 some US$4 billion has left emerging markets, with some of the sharpest outflows coming from South Korea, Indonesia and Thailand, according to data from the Institute of International Finance For some analysts, the sell-off was expected after stocks in Asia climbed to record highs in some cases.

"This is the beginning of more meaningful setback in a market that was, at least from the nonfinancial sectors, very overvalued and there was a lot of euphoria," said Jonathan Garner, global emerging market strategist at Morgan Stanley.

"I don't think this is a 'one-day' that finishes today," Mr Garner added.

NYTIMES

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