Asian shares find their feet, but Shanghai rout continues
Mainland Chinese shares have fallen nearly 10% this week, and Wall Street is 7% off its 100-day high, as fear grows about the US-China trade war
Singapore — Asian shares found a slightly firmer footing on Friday, to set a course for their first gains in two weeks.
But the rout in Shanghai continued and shares hit lows last seen in 2014.
Investor sentiment remained frail, with Wall Street’s fear gauge — the CBOE volatility index — rising to an eight-month high, pointing to more downside risk, market sources said.
The biggest market shakeout since February has been blamed on a series of factors, including fear about the fallout of a US-China trade war, a spike in US bond yields this week and caution ahead of earnings seasons.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.3%, led by gains in South Korea and Taiwan.
The MSCI index fell 3.6% on Thursday to hit a year-and-a-half low. It is on track for a weekly loss of more than 4%.
History is littered with over 5%-ish type selloffs in the midst of economic expansions
Japan’s Nikkei average fell 0.5% while the Shanghai composite dropped as much as 1.8% to the lowest levels since late 2014, taking losses so far this week to almost 10%.
Wall Street offered Asia a weak lead overnight with the S&P 500 index falling just over 2% to a three-month low, following a 3.29% drop on Wednesday.
“The (US share) market is now about 7% off of its 100-day high, but this is far from a rare occurrence historically,” economists at RBC Capital Markets wrote in a research note.
“Indeed, history is littered with over 5%-ish type selloffs in the midst of economic expansions,” they said.
S&P 500 futures rebounded 0.6% in Asian trade on Friday, in part helped by media reports that the US treasury will not call China a currency manipulator in its upcoming semiannual report.
However, Chinese trade figures on Friday showed its trade surplus with the US hit a record high in September, providing a likely source of contention with US President Donald Trump over trade policies and the currency.
The data showed solid expansion in China’s overall imports and exports, suggesting little damage from the tit-for-tat tariffs with the US.
The CBOE volatility index rose on Thursday to its highest close since February 12, pointing to investors concern of further losses in markets.
“There still appears to be downside risk to the market amid worries the Sino-US trade war may be slowing down global growth,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.
So far this week, Chinese and US shares are among the worst performers in a sign that investors’ concern about the trade war is deepening.
MSCI’s US index has shed 5.5%, compared with a 4.9% fall for MSCI’s gauge of stock performance in 47 countries.
Gold, typically seen as a safe-haven asset at times of high uncertainty, held steady on Friday.
It fetched $1,221.9 an ounce, keeping its 2.5% gain from Thursday, which was its biggest percentage rise since June 2016.
The yield on 10-year U.S. notes edged up 3.6 basis points in Asia to 3.167%.
It is still off its seven-year high of 3.261% touched on Tuesday, but a further rise in US borrowing costs could hurt risk sentiment.
I believe the rise in US yields and the dollar’s rally are coming to a turning point
’Asian stocks appeared to have stabilised but ultimately where US bond yields will settle down will be key,” said Teppei Ino, senior analyst at MUFG Bank.
Adding to the confusion for investors, Trump launched a second day of criticism of the Federal Reserve on Thursday, calling its interest rate increases a “ridiculous” policy.
While that does not appear to have shaken investor confidence in the Fed’s independence, some investors suspect expectations for future rate hikes could be undermined if Trump raises his threat levels.
“I doubt Trump will tolerate further rise in US rates ahead of US midterm elections. I believe the rise in US yields and the dollar’s rally are coming to a turning point,” said Naoki Iwami, fixed income chief investment officer at Whiz Partners in Tokyo.
Lower US yields on Thursday helped push the dollar lower against a basket of major currencies.
The euro ticked up slightly to $1.1605, after a gain of 0.65% on Thursday.
But the yen eased to ¥112.35 to the dollar after hitting a three-week high of ¥111.83 on Thursday.
The Chinese yuan weakened about 0.3%, giving up some of the gains it had made the previous day.
Oil prices bounced back on Friday.
Brent crude futures rose 0.5% to $80.66 a barrel, holding off a four-year high of $86.74 touched on October 3.
West Texas Intermediate (WTI) crude futures edged up 0.44% to $71.28 a barrel, also off its multiyear highs touched last week.