Wall Street casts shadow on Asia

Asian equity markets sink on Wall Street woes

Asian equity markets are showing a distinctive North/South split today. The northern Asia heavyweights, with the highest beta to the US tech rally and China, and with the highest percentage of speculative zeal, have plummeted. ASEAN markets, with less technology darlings and a high percentage of old school banks and property heavyweights are down, but much less so.

The sharp rise in US yields overnight broke the already fragile spirit of Wall Street, helped along by testimony from Chairman Powell that wasn’t as dovish as hoped, and rising fears over the US debt ceiling. The S&P 500 slumped by 2.04%, while the Nasdaq plummeted by 2.83% and the Dow Jones fell by 1.62%. As Wall Street reluctantly assimilates Fed tapering implications, it is not yet clear whether the buy-the-dip army has finally been halted. Index futures on all three indexes have rallied by over 0.50% in Asia, suggesting a Napoleonic retreat from the gates of Moscow is not yet a done deal. We have also been led to water quite a few times by rising yields in the US, only for it to be found wanting.

Japan markets, the centre of much speculative fervour of late have tumbled, with the Nikkei 225 down 2.83%. The Kospi is also suffering, falling by 2.0%. In China, the Shanghai Composite has fallen by 1.80% followed by the CSI 300, down 1.55%. Hong Kong is calm comparatively, perhaps with one eye on the US futures. The Hang Seng is only 0.65% lower.

Singapore is a bastion of calm, the STI climbing 0.05% today. Kuala Lumpur is down 0.40% with Jakarta also modestly in the green, up 0.15%. Taiwan though has plummeted by 1.80% in keeping with its Northern Asian neighbours with its heavy weighting towards tech. Bangkok and Manila are both down 0.40%. Australian markets are also lower with the ASX 200 and All Ordinaries falling by 1.0%.

The stabilising of base metal prices and the rally by US index futures appears to have limited the fallout in ASEAN markets today, along with  a lower beta to technology in favour of cyclical sectors. That is likely to be of cold comfort to Europe though, which will head south this afternoon, although, like ASEAN, I suspect the losses will be more limited. Much will depend, I believe, on whether the rally in US index futures in Asia is sustained or turns out to be a false dawn.

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