Asia: Stock rout deepens as Japan, Australia bear markets loom

[SYDNEY] Asian stocks slumped, with Japanese and Australian shares on the cusp of joining China in a bear market, as concern grew over the strength of the global economy amid a continuing collapse in oil prices.

The MSCI Asia Pacific Index lost 1 per cent to 118.94 as of 11:10 am in Tokyo, extending this year's slide to 9.9 per cent. Japan's Nikkei 225 Stock Average declined 1.4 per cent after plunging as much as 2.8 per cent in early trading. The gauge is down 19 per cent from a June peak. A drop of more than 20 per cent at the close would meet the definition of a bear market. Australia's S&P/ASX 200 Index slipped 0.7 per cent, and is currently down 19 per cent from an April high.

Oil is below US$30 a barrel for the first time in 12 years as global growth worries roil equity, bond and currency markets. Investors awaited 2015 gross domestic product estimates from China on Tuesday as it struggles to boost a slowing economy and money managers debate how many times the Federal Reserve will raise interest rates this year.

"Worries about China, the Fed and global growth are likely to drive continued share market weakness and volatility in the short term," said Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd, which oversees about US$115 billion. "Expect volatility to remain high." Traders have been whipsawed in 2016, with equities around the world off to their worst start to a year on record as oil plummeted to levels last seen more than a decade ago and China struggled to maintain control over its markets.

The Shanghai Composite Index entered a bear market last week, for the second time in seven months, amid persistent investor concern over volatility. China's stock-market watchdog has acknowledged ineptitude and loopholes within its regulatory system after a review of the turmoil that has rocked local markets since June.

The measure rose 0.2 per cent Monday as China's central bank strengthened its daily reference rate for the yuan by 0.07 per cent, the biggest gain in four weeks. The People's Bank of China will impose reserve-requirement ratios on yuan deposits held on the mainland by offshore participant banks from Jan. 25, according to people familiar with the matter. Premier Li Keqiang on Friday pledged a "stable" exchange rate, and said the nation has no intention of stimulating exports through competitive currency devaluation.

The MSCI Asia Pacific Index has been in a bear market since August, as global equities plummeted after China devalued the yuan. The gauge is trading at the lowest level since 2012.

Japan's Topix fell 1.3 per cent on Monday, bringing its losses from an August high to 18 per cent. Hong Kong's Hang Seng Index retreated 0.9 per cent, extending a three-year low, and South Korea's Kospi index dropped 0.2 per cent. Singapore's Straits Times Index lost 1.3 per cent. The market is one of the worst global performers over the past year, with the benchmark gauge down more than 25 percent from a peak.

New Zealand's S&P/NZX 50 Index slid 1.5 per cent. Australia's ASX 200 pared earlier losses as Woolworths Ltd. surged 4.8 per cent after saying it's exiting Masters - its unprofitable Australian home-improvements joint venture with Lowe's Cos.

Both US crude and Brent settled below US$30 a barrel at the end of last week and the Standard & Poor's 500 Index sank 2.2 per cent on Friday. Brent oil briefly dropped below US$28 a barrel on Monday after international sanctions on Iran were lifted, paving the way for increased exports from the OPEC producer amid a global glut.

Futures on the S&P 500 rose 0.2 per cent. US markets are closed Monday for a holiday.

The US economy is weaker than expected though probably not headed for recession in 2016, Mohamed A. El-Erian said in an interview on Fox News.

"We are experiencing a lot of volatility. Growth and wages are lower than where we could've been, but let's not forget it's an economy that creates a lot of jobs," Allianz SE's chief economic adviser said.

BLOOMBERG