Monday, 12 September 2016

Asian stocks plunge following Wall Street’s Friday rout

Asian shares started the week notably weaker as investor anticipation continues to build regarding a pause in global central banks’ easing policies, which have helped prop up asset prices.

Emerging markets in Asia are particularly vulnerable to a rate increase in the U.S. as better returns there could prompt a flight of capital from less-developed locales. But some say strong growth and the potential for earnings to pick up faster in Asia will temper any sharp withdrawals.

After the biggest stock declines in the U.S. on Friday since the initial post-Brexit drops and following a summer devoid of volatility in equities trading there, Australia’s S&P/ASX 200 XJO, -2.17% recently traded nearly 2% lower Monday morning after its biggest decline in five weeks on Friday while the Nikkei Stock Average NIK, -1.75% was down 1.2% and Korea’s Kospi SEU, -2.09% dropped 1.5%.

Hong Kong’s Hang Seng index HSI, -2.76% opened 2.4% lower after last week’s 3.6% jump and the Shanghai Composite SHCOMP, -2.38% started down 1.6%.

“Friday’s market adjustment to the possibility of higher rates has continued in early Asian trade, with a sharp jump in Australian bond yields and a weaker opening” in Asian oil trading, said CMC Markets chief market analyst Ric Spooner.

Commodity names were outperforming to the downside in Australia, with big miners BHP Billiton Ltd. BHP, -4.02% and Rio Tinto Ltd. RIO, -2.49% off 3.2% and 2.1%, respectively.

One bright spot this morning were Japanese life insurers, gaining on expectations that their investments abroad would yield higher returns. Dai-ichi Life Insurance Co. 8750, +2.43% rose 1.5% and T&D Holdings Inc. 8795, +2.27% gained 1%.

Monday’s selloff comes as investors in the U.S. on Friday in particular sold shares of high dividend-payers in utilities and telecom — which have been favorites as yield plays given the low-rate environment. Federal Reserve Bank of Boston President Eric Rosengren on Friday said “a reasonable case can be made” for tightening interest rates to avoid overheating the economy.

Fed Governor Lael Brainard is scheduled to speak on Monday, a day ahead of the blackout period on public comment which begins before next week’s FOMC meeting.

In the bond market, yields on 10-year Australian benchmark debt hit 12-week highs today as investors bet on a higher rate environment. Yields rise as prices fall. Yields also rose on long-term Japan government bonds amid lingering speculation that the Bank of Japan may begin pulling back on its aggressive easing policies.

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