Asian markets hit by rout on financial conditions squeeze

LIKE other key Asian markets, Singapore shares are trading sharply lower on Thursday in a sea of red as Wall Street equities and bonds slumped over the impact of rising interest rates.

On Wednesday, the S&P 500 stock index fell more than 3 per cent, its biggest one-day fall since February. Meanwhile, the Dow posted its third-biggest single day in its history. Tech stocks, which took the biggest hit, resulted in the tech heavy Nasdaq losing 4 per cent, the biggest single-day drop in over two years.

Commenting on the market selloff in the US, Paras Anand, head of asset management, Asia-Pacific, at Fidelity International said: "The sharp selloff in the US has likely caught no one by surprise. If anything, market participants have been wondering how, in the face of tighter money, a tighter labour market and rising oil prices, the US has continued to be so resilient."

Stephen Innes, head of trading at Oanda said that "the focus not too unexpectedly remains on US equity and bond markets".

Meanwhile, Eli Lee, head of investment strategy, Bank of Singapore, noted that "while no single negative headline triggered the decline yesterday, some amount of air-letting was overdue for the US market, which has continued to hit new highs over the last six months against a backdrop of rising risks".

"This includes the ramping up of Sino-US trade tensions, record-high treasury yields, questions over corporate earnings growth, and also larger global concerns related to pressure on emerging markets and Italy's budget situation in Europe," he added.

In Singapore, the Straits Times Index (STI) extended losses in the early session, down 3.0 per cent or 94.62 points at 3,036.86 as of 1.22pm. The STI has not traded below Thursday's open of 3,074.77 since February 2017, and has fallen about 6 per cent since closing at 3,263 early last week.

Among index-listed stocks, Venture Corp shares were trading S$0.76 or 4.5 per cent down at S$15.98; Genting Singapore shares fell S$0.045 or 4.5 per cent at S$0.955; and Yangzijiang shares lost S$0.05 or 4.0 per cent to trade at S$1.20.

Financials fared little better with DBS shares down S$0.77 or 3.1 per cent at S$24.18 ; OCBC Bank shares were lower by S$0.36 or 3.3 per cent at S$10.59; and UOB slipped S$0.86 or 3.3 per cent at S$25.02

CMC Markets' Margaret Yang said that market participants were also waiting on the Monetary Authority of Singapore's biannual policy announcement to paint a clearer picture of the policy outlook.

In regional markets, the Shanghai Composite Index sank 4.4 per cent, while the Hang Seng in Hong Kong tumbled 3.8 per cent. Australia's ASX 200 dropped 2.7 per cent, while South Korea's Kospi slid 3.8 per cent. Japan's benchmark Nikkei stock average has lost 4.1 per cent.

Medha Samant, investment director for Asian equities at Fidelity International, said: "The US market selloff last night spooked sentiment and rekindled memories of similar trading sessions at the beginning of this year. "

She added that it was likely that "this negative sentiment could roll over to the Asian markets in the short term - slowing global growth, strong dollar and protectionism are already weighing on sentiment especially for those emerging markets and currencies with weak macro and vulnerable balance sheets."

DBS Group Research analysts noted that emerging market and Asia risky assets have sold off significantly over the past few months on the back of higher US dollar rates and trade war worries and expect emerging market and Asian assets would come under further pressure if US equities sink further.

Despite the performance of the markets, Mr Anand noted: "The medium-term outlook for the global economy remains robust and the gradual withdrawal of monetary stimulus is a sign of a return to more normal conditions. It feels like the right response for investors to signs of the US market finally losing momentum is to hunt out the value in areas that have already been aggressively sold down."

Asian currencies are likely to remain on the defensive for Thursday said UOB's global economics and markets research team in its market overview although "the overnight steep plunge in US equities may result in some follow through US dollar weakness on the pull back in 10 year US Treasuries yield below 3.2 per cent".

"More importantly, Asian currencies are likely to continue to take their cue from the Chinese yuan. And the yuan remains cautious ahead of the US Treasury's 'FX Practices' report next week as well as repeated comments from the US Treasury expressing concerns over recent weakness in the yuan," UOB added.