[TOKYO] On Mirabaud Asia Ltd's Hong Kong trading floor, stockbrokers sat in quiet disbelief. At Vunani Private Clients in Johannesburg, calls from worried investors came in thick and fast. In Mena Corp Financial Services LLC's Abu Dhabi office, traders cancelled vacation plans.
"The situation is terrible and there's a lot to be concerned about," said Nabil Rantisi, managing director of Abu Dhabi-based Menacorp, the biggest brokerage by value traded in the United Arab Emirates. "It feels like it's judgment day. I've spent my entire holiday working." Investors in riskier assets rushed for the exits on Monday, sparking an 8.5 per cent selloff in the Shanghai Composite Index and sending European shares to their biggest retreat since 2011. Commodities prices sank to a 16-year low, while the currencies of Russia and South Africa weakened at least 1.7 per cent against the dollar.
Volume on stock exchanges from Hong Kong to Frankfurt surged, with brokers citing margin calls as one reason for the extent of the losses. After more than six years of largely uninterrupted gains in global equity markets, China's economic slowdown and the prospect of higher US interest rates are prompting investors to reassess their holdings.
"This move down is likely to cause some nasty margin calls," said Andrew Clarke, director of trading at Mirabaud Asia. "Brokers are in damage limitation mode." The declines on Monday were most extreme in China, where the benchmark Shanghai Composite erased its gain for the year despite a government announcement that pension funds can buy shares for the first time. The rule change was the latest in a series of efforts to prop up equity prices amid a US$4 trillion rout.
Chen Gaomin, 26, an individual investor who works at Baidu Inc. in Beijing, said she'd be in favour of government intervention if it helps to recoup her losses. All her colleagues at the Chinese search-engine operator are losing money in the equity market.
"There is a super gloomy atmosphere talking about stocks," she said. "I just want the performance to go back to normal soon, so I can get my money back." South Africa's benchmark equity index sank as much as 3.8 per cent, the biggest intraday rout since 2010, as the rand plunged to a record low.
"You're seeing a lot of capitulation, people selling for the sake of selling and wanting to get out of the market," said Michele Santangelo, a money manager at Vunani Private Clients.
In Singapore, where the local currency touched a five-year low on Monday, Barclays Plc economist Leong Wai Ho said client requests were flooding in three times faster than normal. Investors are trying to gauge how vulnerable Asian economies are to capital outflows, he said. Malaysia's ringgit weakened 1.8 percent, while Indonesia's rupiah slipped 0.7 percent as a Bloomberg gauge of emerging-market currencies slid to the lowest level on record.
"With each selloff, the nerves are becoming more frayed," he said.
Some traders saw opportunities. John Zhu, a portfolio manager who helps oversee about A$40 million at Triple 3 Partners in Sydney, has been betting on higher equity volatility through options on the so-called VIX index in the U.S.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, more than doubled last week amid concern that an interest-rate increase as soon as this year will erode demand for shares. Futures on the Standard & Poor's 500 Index sank 1.5 percent on Monday, following a 5.8 percent plunge in the index last week.
"If this persists, it'll be a very good time for us to make a killing," Zhu said. "It won't be a new bear market, but it depends on how the Fed reacts." Supreeth Shankarghal, who helps oversee US$400 million as a director at hedge fund QF Assets Ltd. in Bengaluru, is buying Indian shares and futures in a bet that prices will rebound.
"There is no time to waste, no painstaking Powerpoint presentations to analyze and justify each strategy," Shankarghal said. "The only strategy is to just buy. Almost everything is looking attractive." As Japan's Topix index sank more than 10 percent from its Aug. 10 high, Credit Suisse Group AG's Basil Dan, the firm's head of equity sales in Tokyo, saw rare sell orders from pension funds in the U.S. and Europe. Even defensive stocks, those that tend to hold up best during economic turmoil, were coming under pressure, he said.
"Relatively speaking, Japan is looking attractive to other countries," Dan said. "But as globally we're in a risk-off mode, we might not see any money flow in for a while."