TOKYO: Markets in Asia and Europe fell again Monday, extending their slide into a second week as investors worried about a possible global slowdown dumped stocks that had surged in recent weeks.
Also sparking jitters was the yen’s jump to a three-month high against the dollar as traders reversed so-called yen-carry trades that involved borrowing money at Japan’s ultra-low interest rates to invest in higher-yielding assets elsewhere. A decline in this practice could hurt global liquidity.
In Tokyo, the Nikkei 225 index fell for a fifth day, tumbling 575.68 points, or 3.34%, to 16,642.25 points, dragged down by major exporters such as Canon Inc., Sony Corp. and Toyota Motor Corp., whose earnings are eroded by a stronger yen. Since reaching a nearly seven-year high last Monday, the Nikkei index has slid 8.64%.
Markets in Hong Kong, Australia, the Philippines, Malaysia, India and South Korea all fell sharply Monday, continuing their declines from last week, when a 9% plunge in Chinese stocks on Tuesday triggered a sell-off on Wall Street and other global markets.
“It looks like it’s becoming a domino, with one market pulling down the other and I don’t know where the domino effect will stop,” said Jose Vistan, research director at AB Capital Securities in Manila, Philippines, where the benchmark index sank 4.5%.
“Everything takes a back seat relative to the sell-off that we are seeing. It’s emotions,” Vistan said. “You throw away technicals and fundamentals out the window. Emotions are the ones driving share prices right now.”
European markets also opened lower Monday, with Britain’s benchmark FTSE 100 down 1.5% in early trading, France’s CAC 40 sliding 1.8% and Germany’s DAX sinking 2.1%.
Hong Kong’s Hang Seng index tumbled 4% to its lowest since mid-December. Australia’s stock market — which had hit records last month — fell for a fifth day, sinking 2.3 percent.
South Korea’s benchmark index dropped 2.7% and Indian stocks were down nearly 4%.
Investors still seemed risk-averse after the previous week’s turmoil.
“When there’s such a big market move in such a short period of time, there’s that element of surprise and confusion,” said Teruhisa Ishikawa, section chief for investors information at Mizuho Investors Securities Co.
Funds and institutional investors tend to go on a selling binge to trim losses in reaction to such market moves, he said, adding that what was ahead was still unclear.
In China, the Shanghai Composite index fell a more modest 1.6 percent, but foreign-currency denominated “B shares” tumbled after officials denied rumors those stocks might be merged with the mainstream Chinese-currency “A shares.”
A lack of market-boosting news as the Chinese national legislature began its annual session also appeared to sap buying enthusiasm.
Some analysts see the market selloff as a healthy correction for markets that had risen too far, too fast. China’s market had doubled in value last year, for example. In Malaysia, stocks had surged 17% since the start of the year. Even after losing more than 10% since last week, they have only fallen back to their lowest since 12 January.
Yutaka Miura, senior analyst at Shinko Securities in Tokyo, warned that much still depended on what happens overnight in US and European markets, as well as what happens to the dollar.
Investors fretted over signs that international investors were unwinding yen-carry trades, which involve borrowing the yen in Japan, where benchmark interest rates are now 0.5% to buy assets with greater yields in other currencies.
With the yen’s recent appreciation, the profits from those carry trades are eroded, prompting some investors to return yen loans, strengthening the Japanese currency.
“Yes, there was some unwinding of yen-carry trades among short-term players, but basically traders in Tokyo were selling the yen because foreign players wanted to buy it,” said Tohru Sasaki, Chief FX Strategist with JP Morgan Chase Bank.
While the Bank of Japan raised interest rates last month, rates here are still far lower than rates in the US or Europe, making the yen carry trade still an attractive strategy, analysts said.
The yen’s appreciation accelerated as its gains triggered stop-loss buy orders early Monday, sending the dollar as low as 115.47 yen in morning trade, its lowest level since 8 December.