HONG KONG, Nov 2 — Asian stocks slipped to a one-month low today after a sell-off in banking shares slammed Wall Street, a slide viewed as a sign that investors are losing faith in the economic recovery.
Worries about the US financial sector resurfaced after CIT Group Inc, the lender to small and mid-sized US companies, filed for bankruptcy and an accounting expert said Citigroup may need further write-downs.
But the fallout on Asian equity markets was limited and higher-yielding currencies quickly recovered from early losses, with some market players blaming the volatile moves on profit-taking and portfolio reshuffling before year-end.
Chinese manufacturing activity accelerated to an 18-month high in October, underscoring Asia’s engine of growth is powering ahead even as demand from the United States and other major economies remains weak.
The dollar dipped while oil prices edged higher to bounce back from a sharp drop on Friday along with shares. US crude oil rose nearly a per cent toward US$78 (RM265) a barrel.
Hedge funds and other players were cited as sellers of emerging market stocks and currencies last week, looking to take profits on their best trades before many funds close their books for the year in November.
“We have seen modest redemptions out of our pool of funds and that is mainly because of a brief round of profit taking and risk reduction by clients who allocated early this year,” said Adam Matthews, head of the Asian client portfolio management team at JP Morgan Asset Management in Hong Kong.
“Judging from the money parked on the sidelines by pension funds, insurers and private banks its difficult to believe the market can fall more than 10-20 per cent in the short term. In the long term we don’t expect the yo-yo like volatility in the region’s markets to continue as institutional allocation is here to stay,” said Matthews, who manages funds worth US$58 billion.
The MSCI index of Asia-Pacific shares outside Japan fell about 1 per cent, touching a one-month low but still up some 58 per cent this year.
Investors sold US$530 million in shares in Asia ex-Japan last week but have snapped up US$50.6 billion so far this year, with South Korean and India taking in the biggest amount of funds.
Japan’s Nikkei average dropped 2.3 per cent, mirroring the 2.8 per cent slide in the US S&P 500 on Friday — its biggest one-day drop since July. But futures on the S&P edged up in Asia, providing some relief that the selling pressure would not extend into the new month.
VOLATILIY IS BACK
A spike in the VIX volatility index on the S&P, known as Wall Street’s fear gauge, also stirred worries that investors were starting to brace for a deeper drop in stocks.
But the move in the equity options market was not mirrored in Asia. Implied volatility, a gauge of option market expectations of future moves, on Nikkei futures edged up only slightly.
The slide in US shares came despite an array of positive third-quarter earnings.
Thomson Reuters data shows that 80 per cent of the 344 companies in the S&P 500 that reported earnings so far have beaten expectations.
China’s key stock index rose 2.7 per cent, its biggest one-day gain in more than three weeks, as solid earnings and upbeat manufacturing data powered a sharp rebound from early weakness. But the Nasdaq-style ChiNext market for start-up stocks, which began trade last Friday with a speculative surge, was broadly weaker as profit taking sent about two-thirds of its 28 stocks down by their 10 per cent daily limit.
In Hong Kong, shares narrowed losses to well below a per cent as gains in China encouraged some bargain hunting, but exporter Li & Fung slumped on gloomy US consumer sentiment.
Australian stocks fell more than 2 per cent, followed by a 1.4 per cent loss in South Korea. Falls in Taiwan and Singapore were marginal, while the Indian stock market was closed for a public holiday.
Gains in higher-yielding currencies weighed on the dollar. Its performance gauge against six major currencies dipped about 0.2 per cent.
The Australian dollar rose 0.7 per cent to US$0.9044, while the euro edged up 0.2 per cent to US$1.4745.
Some of the early volatility in higher-yielding currencies was due to a sharp fall in the South African rand tied to selling by a Japanese margin trader broker. Traders suspected that a mistaken trade may have sparked the sharp drop.
Government bonds gained on the stock market woes. The benchmark 10-year Japanese government bond yield dipped 3 basis points to 1.375 per cent, down from a 2-½ month high reached last week. — Reuters
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