'Panic
situation': Asian stocks tumble amid fears of new global recession
Japan’s
Nikkei index falls more than 5% in trading with Australian and some
other Asian markets following suit
Justin McCurry in
Tokyo and agencies
Tuesday 9 February
2016 07.20 GMT
Japan’s Nikkei
index plummeted more than 950 points on Tuesday, its biggest loss in
one day since May 2013, as the fears over the global economy saw a
continuation of the previous day’s selloff in Europe and the US.
The Nikkei dived
5.1% to 16,132.25 in morning trading and extended losses into the
afternoon, while Australia’s S&P/ASX 200 fell 2.6% to 4,946.70.
Markets were also down in the Philippines, Indonesia, Thailand and
New Zealand. The yen meanwhile briefly soared to a 14-month high
against the US dollar.
The MSCI’s index
of Asia-Pacific shares outside Japan fell 1% and might have fallen
further had several Asian markets not been closed.
Markets in China,
Hong Kong, Taiwan and South Korea were closed for Lunar New Year
holidays. Most markets in the region will re-open from Wednesday,
with Chinese markets returning next week.
The volatility
affecting global markets last month appears set to continue amid
concern about Chinese economic growth, falling oil prices and
speculation that the US federal reserve could change course with
interest rates.
“The combination
of concerns that the United States could be heading toward a
recession and the global stock sell-off is curbing risk appetite and
is sending investors to the safe-haven yen,” Takuya Takahashi,
senior strategist at Daiwa Securities, told Kyodo News.
After hovering
around the 117-yen line on Monday, the Japanese currency briefly rose
to the upper 114 zone to its strongest level against the dollar since
November 2014. Investors regard the yen as a “save haven”
currency when global markets are hit by the kind of turmoil witnessed
in recent weeks.
The yen is expected
to make further gains – a trend that eats into the repatriated
profits of Japanese auto and other exporters. Three-month dollar/yen
implied volatility – which indicates how much currency movement is
expected in the months ahead - reached 12.137% its highest since
September 2013.
Responding to the
yen’s rise, Japan’s finance minister, Taro Aso, told reporters:
“It is clear that recent moves in the market have been rough. We
will continue to carefully monitor developments in the currency
market.”
The dollar was last
at 115.26 yen, down 0.6%, after dropping as low as 114.75.
Kaneo Ogino,
director at foreign exchange research firm Global-info Co in Tokyo,
described it as a “panic situation”.
Ogino added that
investors would be closely watching the US federal reserve chair
Janet Yellen’s testimony to the house financial services committee
on Wednesday for any clues that the central bank might be prepared to
slow future rate hikes as market turbulence and global economic
uncertainty continue.
“The focus is now
on Yellen’s comments tomorrow, and how she’ll respond to these
latest market conditions,” Ogino said.
The flight to safety
also saw Japanese government bond yields dive below zero for the
first time, extending a downtrend sparked by the Bank of Japan’s
surprise move last month to adopt negative interest rates on some
commercial lenders’ deposits.
“The Nikkei has
been well and truly savaged today,” said Chris Weston, chief
markets strategist at IG in Melbourne. “It is clear that strong
buying in the Japanese government bond market is not going to drive
the (yen) weaker in times of extreme volatility, so negative rates
have little bearing on markets.”
The Bank of Japan’s
rates decision has prompted fears that after years of monetary
easing, central banks have few avenues left to explore to encourage
investment and boost growth.
Talk of an impending
recession in the US, however, is creating speculation among investors
that the federal reserve will put on hold its attempts to normalise
rates.
“The ‘fear
factor’ in markets has morphed from being about an emerging market
hard-landing and collapsing oil prices to being about the extent of
the slowdown in the developed world and the ability of central banks
to reflate asset values yet again,” said analysts at Citi in a
note.
The pessimism isn’t
universal, however. In a report released at the weekend, Goldman
Sachs said there was just a 25% risk that recession would hit
industrialised economies in the next year, rising to 34% over the
next two years.
Both forecasts fall
below the average risk seen in the past 35 years, despite the turmoil
in financial markets. In the US, the probability of a recession in
the next four quarters is just 18%, and 24 in the eurozone, according
to the US bank’s economics team.
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