The combination of weaker Chinese manufacturing, political turmoil from Turkey to Thailand and the devaluation of Argentina's peso has shaken investor confidence at a time when the Fed is scaling back the bond-buying program that had fuelled inflows into emerging markets.
The latest round of selloff in the regional market started on Thursday when a disappointing report on Chinese manufacturing sent investors out of risky assets on concerns growth in the world's second-largest economy is slowing. The HSBC-Markit Flash Purchasing Managers' Index fell to 49.6 in January, down from 50.5 in December, according to Markit. The reading hit a six-month low. A figure under 50 indicates contraction. The Flash (PMI) is published on a monthly basis ahead of final PMI data, making the HSBC PMI the earliest available indicator of manufacturing sector operating conditions in China.
Investors are more sensitive to turmoil in emerging markets such as China because they're playing an increasingly large role in the world economy. Emerging and developing economies account for nearly 40% of the global economy, up from 18% two decades ago, with China's share zipping to 14% from 4%, according to Societe-Generale.
In recent years, emerging markets have been supported by the Fed's stimulus programme, known as quantitative easing, aimed at boosting its economy following the global financial crisis, but any cut could pull more money out of these risky markets and hurt growth.
Under the stimulus programme, the US Federal Reserve had been buying bonds worth $85 billion per month. But, the US central bank announced in December 2013 that it planned to scale back the programme by $10 billion per month. Investors were awaiting a two-day meeting of the U.S. Federal Reserve starting Tuesday, where officials are expected to reduce the central bank's monthly bond buying by another $10 billion to $65 billion.
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Emerging markets have been propped up for years by investors seeking higher returns using a tide of so-called "easy money" from the Fed and other central banks but now that the end for those policies looks to be near, some investors are fleeing stocks.
The turmoil has slammed some places particularly hard, such as Argentina, where the peso dropped 16% against the dollar over two days last week. Last week, Argentina's peso saw its sharpest one-day fall since the country's 2002 financial crisis. It plunged 11% against the US dollar on Friday after the central bank unexpectedly abandoned its efforts to support it.
The Turkish lira has also been volatile, falling to an all-time low in recent weeks, on concerns that a corruption scandal may destabilise the government. The country's central bank said it will hold an interim monetary policy meeting on Tuesday evening, with speculation growing that it may decide to increase interest rates. The Turkish lira strengthened to 2.35 against the US dollar on the news, up from its earlier low of 2.39.
Among Asian bourses, Japan's share market stumbled for third straight session, as risk aversion selloff continued across the board on renewed concern that the global economic recovery is faltering. Meanwhile, selloff pressure intensified after the yen appreciated to seven-week high versus the greenback and on doubts about the prospects for growth in Japanese corporate earnings. The benchmark Nikkei-225 index lost 385.83 points to finish at 15005.73, while the Topix index of all first-section shares fell 35.37 points to 1,229.23.
The yen appreciated sharply against the dollar with investors flocking to the safe-haven Japanese unit as emerging market currencies continued their descent. In forex markets, the dollar bought 102.45 yen, up slightly from 102.30 yen on Friday in New York where it had dropped from 103.24 the previous day.
Doubts about the prospects for growth in Japanese corporate earnings were another key selling cue. A string of blue-chip Japanese firms including Nintendo, Honda and Toshiba release their April-December financial results this week.
Export related stocks stumbled as the U.S. dollar briefly dipped below the 102-yen level. A stronger yen tends to make Japanese products sent abroad more expensive. Industrial major Komatsu dropped 3.9% and Sony Corp sank 2.95%. Fuji Heavy Industries dropped 2.41%, Hino Motors 4.81% and Isuzu Motors 2.72%.
CAWACHI shares dropped 1.6% to 1910 yen after the retailer reported that its net income declined 14.1% to 3.32 billion yen for the December quarter despite net sales rose 3.5% to 179.19 billion yen during the period.
SPK CORP shares declined 1.2% to 1877 yen after the automobile wholesaler reported 3.2% rise in net profit to 635 million yen on 3.5% growth in net sales to 25.56 billion yen.
The Japan finance ministry reported on Monday that Japan's trade deficit swelled to a record 11.47 trillion yen in 2013, almost double the previous year's 6.9 trillion yen, as energy shipments and weakness in the yen pumped up the nation's import bill. Exports rose 9.5% last year to 69.79 trillion yen, their first increase in three years, backed by robust shipments of cars and electronics.
Imports rose 25% in December from a year earlier and exports gained 15%, leaving a monthly deficit of 1.3 trillion yen.
In China, Mainland China stock market declined amid deepened concerns on tightening liquidity conditions in the mainland. The Shanghai benchmark provisionally ended 21.09 points lower at 2033.30, while CSI 300 Index lost 29.76 points to 2215.92.
The money rates in Beijing spiked on Monday despite net 375 billion yuan cash injection last week, the largest in nearly a year, as the possibility of a wealth-product default has deepened concerns on tightening liquidity conditions in the mainland.
Investors are cautiously focusing on Beijing to see how it will resolve a troubled loan involving a major Chinese bank and a shadow lender that is due to mature this Friday. A default could batter confidence in China's loosely regulated shadow-banking sector.
Shares of Shanghai banks and financials suffered heavy losses as concerns linger about a troubled Chinese wealth-management product marketed by the country's largest lender, Industrial and Commercial Bank of China (ICBC). Shares of ICBC declined 1.2% to 3.36 yuan, Agricultural Bank of China 0.4% to 2.36 yuan and China Merchant Bank 1% to 10.33 yuan.
In Hong Kong, shares in HK market declined for third consecutive day, on tracking the 318-points decline of the Dow on Friday and on intensifying worries over slowing growth in China. Concerns over Emerging markets and their growth prospects also weighed on market sentiments.The benchmark Hang Seng Index provisionally finished 473.96 points lower at 21976.10.
Chinese coal miners listed in Hong Kong declined, with China Coal drop 2% to HK$3.93, its lowest close since July 4 after announcing its full-year net income dropped by 55% to 65% from a year earlier because of falling coal prices and government effort to reduce reliance on the fuel. China Shenhua Energy Co., the nation's biggest coal producer, slumped 3.3% to HK$20.55. Yanzhou Coal Mining Co. (1171) dropped 1.8% to HK$5.99.
Macau gaming stocks reversed the morning weakness and rebounded in afternoon session. Galaxy (00027) edged up 0.5% to HK$73.95 after hitting low of HK$68.2. Sands China (01928) nudged up 0.3% to HK$59.95 recovering its earlier losses to a low of HK$56.
Shares on precious metal miners rose as cold prices soared on risk-aversion sentiment as emerging markets became unstable. Zhaojin Mining (01818) put on 3% to HK$4.79. Zijin Mining (02899) gained 2.9% to HK$1.76.
Hong Kong's value of total exports of goods (comprising re-exports and domestic exports) remained virtually unchanged in December 2013 from a year earlier at HK$310.9 billion, after a year-on-year increase of 5.8% in November, data from the Census and Statistics Department showed. Within this total, the value of re-exports edged up 0.1% to HK$306.3 billion in December, whereas the value of domestic exports dropped 7.9% to $4.6 billion. Concurrently, the value of imports of goods rose 1.8% over a year earlier to HK$365.2 billion in December 2013, after a year-on-year increase of 5.2% in November. A visible trade deficit of HK$54.4 billion, equivalent to 14.9% of the value of imports of goods, was recorded in December. For 2013 as a whole, the value of total exports of goods rose 3.6% over the same period in 2012. Within this total, the value of re-exports grew 3.8%, whereas the value of domestic exports fell7.6%. Concurrently, the value of imports of goods rose 3.8%. A visible trade deficit of HK$501 billion, equivalent to 12.3% of the value of imports of goods, was recorded in 2013.
In India, key benchmark indices slumped on the first trading session of the week on tracking sell-off seen in other Asian markets, thanks to concerns over a slowdown in China, further tapering by US Federal Reserve and selling seen in emerging market currencies.
The Indian market sentiment was also hit adversely by data showing that foreign funds were net sellers of Indian stocks on Friday, 24 January 2014. Foreign institutional investors (FIIs) sold shares worth a net Rs 200.60 crore into the secondary equity markets on Friday, 24 January 2014, as per the data from the Securities & Exchange Board of India (Sebi).
The S&P BSE Sensex plunged 426.11 points or 2.02% to settle at 20,707.45, its lowest closing level since 7 January 2014.
All the sectoral indices on BSE were in the red. The S&P BSE Realty index (down 6.82%), the S&P BSE Capital Goods index (down 2.7%), the S&P BSE Power index (down 3.01%), the S&P BSE Bankex index (down 3.97%), the BSE PSU index (down 2.71%), the S&P BSE Oil & Gas index (down 2.37%), the S&P BSE Metal index (down 3.81%) and the S&P BSE Auto index (down 3.33%) underperformed the Sensex.
The S&P BSE Consumer Durables index (down 1.9%), S&P BSE FMCG index (down 0.18%), the S&P BSE Healthcare index (down 0.9%), the S&P BSE IT index (down 0.64%), the S&P BSE Teck index (down 1.16%), outperformed the Sensex.
Bank stocks declined ahead of the Reserve Bank of India (RBI) Third Quarter Review of Monetary Policy for 2013-14 tomorrow, 28 January 2014. Among private bank stocks, ICICI Bank was down 4.53%, AXIS Bank (down 3.89%), HDFC Bank (down 3.6%) and Kotak Mahindra Bank (down 3.82%), declined. Among PSU bank stocks, State Bank of India (down 1.69%), Union Bank of India (down 4.7%), Bank of India (down 7.55%), Bank of Baroda (down 5.41%), Punjab National Bank (down 5.84%) and Canara Bank (down 5.81%) declined.
Shares of FMCG major Hindustan Unilever (HUL) rose after the company announced its Q3 results. The stock rose 2.46% to Rs 579.80. HUL said its profit after tax before exceptional items, PAT (bei), rose 9% to Rs 955 crore in Q3 December 2013 over Q3 December 2012. Total income from operations (net) rose 8.54% to Rs 7223.35 crore in Q3 December 2013 over Q3 December 2012. The result was announced during trading hours today, 27 January 2014.
Elsewhere in the Asia Pacific region, New Zealand's NZX50 index decreased 0.41%. South Korea's KOSPI shed 1.56%. Indonesia's Jakarta Composite index dropped 2.58%. Taiwan's Taiex index was down 1.58%. Malaysia's KLSE Composite shed 1.31%. Singapore's Straits Times index dropped 1.09%. Australian markets are closed for a holiday.
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