Asia: Stocks slump deepens amid stimulus angst as ringgit falls

[WELLINGTON] Asian stocks retreated for a fifth day and Malaysia's ringgit sank to its lowest since June as the prospect of global central banks turning less accommodative unnerves investors.

The MSCI Asia Pacific Futures slid to a five-week low as shares declined in Japan and New Zealand. Futures foreshadowed losses in China, Hong Kong and Singapore after US equities posted their weakest close in two months.

The dollar held gains following its steepest advance in two weeks, while oil recouped some of the last session's loss to trade near US$45 a barrel. Australian and New Zealand sovereign bonds declined, tracking a slump in US Treasuries.

Volatility has come roaring back in markets following an unprecedented stretch of calm. Equities slid with bonds and precious metals Tuesday as concern central bankers are reconsidering their approach to monetary stimulus spurs investors to boost cash holdings, according to Bank of America Corp.

Traders are looking for secure positions with Chinese markets closed for holidays Thursday and Friday and investors counting down to meetings of the Bank of Japan and the Federal Reserve next week.

"Investors are waking up to the fact that valuations are high and these record-low interest rates won't be with us forever," said Mark Lister, head of private wealth research in Wellington at Craigs Investment Partners, which manages about US$7.2 billion.

"There's a lot of event risk coming up with the US election, several central bank meetings and oil prices are still looking shaky. Markets had become dangerously reliant on central bank support and this is a bit of a wake-up call that this won't always be the case."

While markets in South Korea are closed for a holiday Wednesday, Japan is due to report on industrial production and India updates on wholesale prices. Thailand is projected by economists to keep benchmark interest rates on hold in a review.

The MSCI Asia Pacific Index fell 0.6 per cent as of 9:17am Tokyo time as Japan's Topix index declined 0.5 per cent, while Australia's S&P/ASX 200 Index was little changed. New Zealand's S&P/NZX 50 Index dropped for a fifth straight session.

Futures on the Hang Seng Index in Hong Kong declined 0.7 per cent and those on the FTSE China A50 Index dropped 0.2 per cent.

Contracts on the S&P 500 added 0.2 per cent, following a 1.5 per cent slump in the underlying index. Apple Inc was the only stock to rise Tuesday on the Dow Jones Industrial Average, which slipped 1.4 per cent.

A measure of 10-day volatility on the MSCI All-Country World Index has jumped to its highest level since mid-July after hovering near a 16-month low for most of August.

"The markets have become dominated by central banks, not just here in the US but globally, that's the dominating force across all asset classes," said Bret Chesney, senior portfolio manager at Austin, Texas-based Alpine Partners.

"When these central banks don't move, people start to fear that their stability factor - which has been central bank policy - may be diminished or gone."

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 peers, was little changed after climbing 0.7 per cent on Tuesday. The yen fell 0.2 per cent and the ringgit sank 0.7 per cent.

The Australian dollar was little changed following a 1.4 per cent slump. The Bloomberg Commodity Index fell 1.3 per cent on Tuesday and the currencies of Brazil, Mexico, New Zealand and Australia - commodity producers all - were the biggest major decliners.

West Texas Intermediate crude added 0.7 per cent to US$45.21 a barrel following a 3 per cent slide.

Industry data showed that US oil stockpiles rose by 1.44 million barrels last week, exacerbating concern over a global glut in the commodity. The International Energy Agency adjusted its view on the outlook for supply this week, saying it sees a glut persisting into 2017.

BLOOMBERG