Equity markets in Asia head south

Asia follows Wall Street and sees red

The Bullard comments on Friday were all the excuse Wall Street needed to send a very long and wrong market south. Much the same pattern is occurring in Asia today to greater or lesser degrees. Mr Bullard is a well-known hawk regarding monetary policy, and the reaction to his comments on earlier rate hikes highlights the degree of nervous positioning out there.

On Friday, the S&P 500 finished 1.31% lower while the Nasdaq fell 0.92%. The Dow Jones suffered most of all, tumbling by 1.58%. Relatively speaking, the Nasdaq has held up relatively well as investors cycle out of growth stocks on the S&P 500 and Dow Jones and into the perceived safety of big-tech. Notably, futures on all three indices have continued retreating in Asia. The S&P 500 e-minis and Dow futures are 0.60% lower, while the Nasdaq futures are just 0.25% lower in a repeat of Friday’s price action. Banks, energy, commodities, and consumer discretionary were all underperforming sectors with a flattening yield curve lousy news for future bank profitability.

In Asia, the Nikkei 225 has tumbled by 3.50%, easily the worst performer of the day. I suspect that market heavy with nervous retail investors is behind the relative underperformance, with no sign of the BoJ entering the market to buy ETF’s, their usual backstop. The Kospi has fallen by 1.20%, while in mainland China, the Shanghai Composite is down just 0.25%, while the CSI 300 is 0.60% lower. Investors there no doubt expecting China’s “national team” to smooth proceedings.

Hong Kong has fallen by 1.50%, with Singapore down 1.25% and Taipei 1.50% lower. Kuala Lumpur has retreated by 1.10%, with Jakarta down 0.90%, and Bangkok is falling by 1.30%. Australian markets are also experiencing a torrid day, as banks and resources lead markets lower in another retail sentiment-dominated market. The ASX 200 and All Ordinaries have tumbled by 1.85%.

European markets are unlikely to buck the trend this afternoon and given that they are very much orientated towards global recovery plays, they could well underperform most of Asia.

The move lower in stocks still looks corrective to me. I suspect the falls are primarily a function of financial markets being very long the global recovery trade. Interest rates are going nowhere fast, and the world’s central banks have not closed the liquidity spigots. That said, the unwinding still has plenty of juice in it, and this week could be a tough one for equities unless some of the Fed doves hit the newswires in force.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

Latest posts by Jeffrey Halley (see all)