Asia: Markets battered as fears of Covid-19 induced recession gathers pace; STI down 2.5%

ASIAN equity markets sank deeper into the red on Friday after Wall Street was dealt its biggest pummelling this week.

Investors are bracing for a global economic slowdown and see rising risk of a US recession due to the Covid-19 outbreak, which the World Health Organization has said is at a "decisive point". Global equity markets are on track for their worst weekly performance since 2008.

AxiCorp chief market strategist Stephen Innes sees this morning's performance in Asia as one that "could be reflective of a shell-shocked market".

Singapore's Straits Times Index (STI) ended down by more than 3 per cent to 3,011.08. 

In North Asia, Japan's Nikkei 225 index shed 4 per cent and South Korea's Kospi index lost 3.3 per cent. Meanwhile, China's Shanghai Composite Index skidded 3.7 per cent and Hong Kong's Hang Seng Index lost 2.5 per cent.

Among South-east Asian markets, Indonesia's Jakarta Composite Index dropped 1.5 per cent, and Malaysia's Kuala Lumpur Composite Index was down 1.6 per cent.

Elsewhere in the Asia-Pacific, Australia's S&P/ASX 200 index was 3.3 per cent lower.

The MSCI Asia Pacific index should notch up a seven-session streak of losses by market close. That said, the declines witnessed in the region were more measured than in the US and Europe.

With regard to relative resilience of Asian benchmarks, CMC Markets' market analyst Margaret Yang noted that they "have already absorbed an initial shockwave four weeks ago". Asian equities have also been trading at lower valuations, providing an extra layer of protection from steeper falls, she added.

For most of the period since Wuhan - the epicentre of the outbreak - has been in lockdown, Asian and US benchmarks have been on a divergent path.

This week, however, US equity markets have been knocked off their perch. 

On Thursday, the S&P 500 had its worst session since October 2019, dropping 4.4 per cent to 2,978.76, en route to its worst three-day run since 2016. The broad-based index, which has lost 10.7 per cent over the past five days, is undergoing a correction.

Mr Innes said: "The rapid increase in Covid-19 cases around the world, and with corporate America beating the supply-chain disruption drum along with the downright momentum that keeps building, has caused the S&P 500 to enter massive correction territory."

The Dow Jones Industrial Average dived 1,191 points or 4.4 per cent to finish at 25,766.64, its biggest single-day drop on record. The Nasdaq Composite Index shed 4.6 per cent to end at 8,566.48.

US Market performance could get worse before improving, noted IG market strategist Pan Jingyi. She said: "It is a race to the bottom for US indices such as the Dow and the S&P 500 index, except it may still be too early to call a bottom given the uncertainty around the matter of the coronavirus impact."

Even though Covid-19 cases are still predominantly in Asia, UBS Global Wealth Management regional chief investment officer Kelvin Tay said the wealth manager continues to favour emerging market (EM) equities to their developed market counterparts.

"Emerging market stocks have outperformed developed markets by 1.7 per cent since the beginning of February, and 2 per cent in the past week. We expect this trend to continue and are overweight EM equities with a particular preference for China within emerging markets," Mr Tay told The Business Times on Friday.