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Markets in Asia post sharp declines on growing global growth concerns; STI down 0.9%
TAKING the cue from Wall Street's selloff on Friday, Singapore shares posted sharp declines in Monday's session with the Straits Times Index (STI) slipping 29.18 points or 0.9 per cent to close at 3,182.92. Other key indices in Asia were also in the red.
US equity indices took hits on the back of weak purchasing manager index (PMI) data from Germany, France and the US, which led to an inversion of US three-month and 10-year treasury yield spreads for the first time since 2007.
CMC Markets' Margaret Yang said that these factors suggest the "global economy is undergoing cyclical slowdown and unveiling risk of recession that was masked by strong stock market rally lately".
These signs could serve as confirmation that global economic growth is tapering off after a decade of quantitative-easing monetary policy induced a bull run following the global financial crisis. The inversion of the yield curve is generally viewed as an early indicator of economic downturn.
Oanda senior market analyst Jeffrey Halley noted that being "inverted for a short period of time is ok, but staying inverted for a long period of time means bad things are going to happen".
That said, market performance in Asia should did not come as a surprise. Mr Halley said: "With investors dumping equities on Friday and running to the apparent safety of G-7 bond markets, it’s hard to see anything but a sea of red this morning in Asia-Pacific."
In its market overview for Monday, the UOB global economics and markets research team said that markets in Asia are likely to be in "risk-off" mode, and such sentiment is likely to be a recurring theme for the week as the first quarter of the year draws to a close.
"Things may calm down if we feel some good vibrations from the trade talks in Beijing later this week, but it could be a rocky few days to start," CMC Markets' Ms Yang said.
If the selloff continues, the view of the STI might be mid-term bearish, she added.
DBS Equity Research said in its daily outlook that in light of the inversion, investors should stick to yield or defensive plays. This is likely to place more attention on S-Reits (real estate investment trust), food and beverage, and utilities stocks by investors.
On the S&P 500 on Friday, only utilities ended the day in positive territory, while cyclical sectors such as financials and tech were among the benchmark index's worst performers.
Australia's S&P/ASX 200 slipped fell 1.1 per cent to 6,126.20 at the close of trade. Japan's Nikkei 225 lost 3.01 per cent, or 650.23 points, to close at 20,977.11, while the broader Topix index fell 2.45 per cent, or 39.70 points, to 1,577.41. South Korea's Kospi finished 42.09 points lower, or 1.92 per cent, to 2,144.86 points.
Meanwhile, Hong Kong's Hang Seng lost 2.03 per cent, or 590.01 points, to close at 28,523.35. The benchmark Shanghai Composite Index sank 1.97 per cent, or 61.12 points, to 3,043.03 and the Shenzhen Composite Index, which tracks stocks on China's second exchange, shed 1.44 per cent, or 24.51 points, to 1,676.43. Malaysia's Kuala Lumpur Composite Index finished 17.51 point lower at 1,649.15.
Gold was up 0.2 per cent to US1,315.73 per ounce.
Brent crude was down 0.6 per cent to US$66.63 per barrel on slowing growth fears.