BLUE WEDNESDAY: Traders work on the floor of the New York Stock Exchange in Manhattan, on October 10 2018, the market's worst day in eight months. Picture: REUTERS/BRENDAN MCDERMID
BLUE WEDNESDAY: Traders work on the floor of the New York Stock Exchange in Manhattan, on October 10 2018, the market's worst day in eight months. Picture: REUTERS/BRENDAN MCDERMID

Sydney/Shanghai — Asian share markets sank in a sea of red on Thursday after Wall Street suffered its worst drubbing in eight months, a conflagration of wealth that could threaten business confidence and investment across the globe.

“Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” was how ANZ analysts summed it up.

The global plunge erased hundreds of billions of dollars of wealth. The head of the International Monetary Fund said stock market valuations have been “extremely high”.

MSCI’s broadest index of Asia-Pacific shares outside Japan plummeted 3.9% to its lowest since March 2017.

Japan’s Nikkei fell 4.4%, the steepest daily drop since March, while the broader Topix lost about $230bn in market value.

Shanghai shares dropped 4.3%, on track for their worst day since February 2016, to their lowest level since late 2014, while Chinese blue chips slid 4%.

Shares in Taiwan were among the region's worst hit, with the broader index losing 6.2%.

“We can't see where the bottom point will be,” said Chien Bor-yi, an analyst at Taipei-based Cathay Futures Consultant.

On Wall Street, the S&P500’s sharpest one-day fall since February wiped out about $850bn of wealth as technology shares tumbled on fear of slowing demand.

The S&P 500 ended Wednesday with a loss of 3.29% and the Nasdaq composite 4.08%, while the Dow Jones industrial average shed 2.2%.

The bloodletting was bad enough to attract the attention of US President Donald Trump, who pointed an accusing finger at the Federal Reserve for raising interest rates.

“I really disagree with what the Fed is doing,” Trump told reporters before a political rally in Pennsylvania. “I think the Fed has gone crazy.”

It was hawkish commentary from Fed policymakers that triggered the sudden sell off in US treasuries last week and sent long-term yields to their highest in seven years.

The surge made stocks look less attractive compared with bonds while also threatening to curb economic activity and profits.

Yuan

The shift in yields is also sucking funds out of emerging markets, putting particular pressure on the Chinese yuan as Beijing fights a protracted trade battle with the US.

On Thursday, the president of the World Bank said he was very concerned about trade tensions and warned of a “clear” global economic slowdown if tariff threats escalate.

China has suspended approvals for an overseas investment product in Shanghai and has asked licence holders such as JPMorgan Asset Management and Aberdeen Standard Investments to be “low profile” in marketing it, as concern grows in Beijing over possible outflow pressures.

China’s central bank has been allowing the yuan to gradually decline, breaking the psychological 6.9000 barrier and leading speculators to push the dollar up to 6.9388 by 3.42am GMT.

The onshore yuan was trading at 6.9309 per dollar at 3.50am GMT, 69 pips weaker than the onshore close of 6.9240 Wednesday.

China’s move has forced other emerging-market currencies to weaken to stay competitive, and drawn the ire of the US, which sees it as an unfair devaluation.

“The yuan has already weakened significantly, to offset the tariffs announced so far,” said Alan Ruskin, Deutsche’s global head of G10 FX strategy. “Further weakness could exacerbate concerns of a self-fulfilling flight of capital, and a loss of control.”

There was also a danger for the US if Beijing had to intervene heavily to support the yuan.

“China buying yuan and selling dollars would likely entail some selling of US treasuries at a point where the market is showing some vulnerability, and could be very vulnerable to signs of China liquidation,” Ruskin said.

The dollar was already losing ground to both the yen and the euro, as investors favoured currencies of countries that boasted large current account surpluses.

The euro pushed up to $1.1565 and away from a low of $1.1429 early in the week. The dollar lapsed to ¥112.17, down 0.1% and a telling retreat from last week’s ¥114.54 peak.

That left the dollar at 95.207 against a basket of currencies.

In commodity markets, gold struggled to get any safety bid and edged down to $1,193.40.

Oil prices skidded in line with US equity markets, even though energy traders worried about shrinking Iranian supply from US sanctions and kept an eye on Hurricane Michael, which closed some US Gulf of Mexico oil output. Brent crude fell 1.9% to $81.51 a barrel, while US crude dropped 1.7% to $71.93.

On Thursday, the head of the IMF, Christine Lagarde, warned that the global economy is “probably not strong enough” and that, with global public debt an all-time high, emerging markets were at risk of capital outflows.

Reuters

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