Hong Kong: Asian stock markets and commodities retreated on Tuesday while the yen pushed higher as a souring economic outlook took some of the wind out of investor hopes sparked by China’s massive stimulus plan.
Stocks pulled back after shares of General Motors sank to a 62-year low and brokerages forecast that Goldman Sachs will post its first-ever quarterly loss, stirring worries about the earnings damage to come as the global economy faces a recession.
The bankruptcy of No. 2 US electronics retailer Circuit City also dashed the previous day’s optimism.
China’s announcement that it was planning a nearly $600 billion package focusing on infrastructure, along with expectations US President-elect Barack Obama will push for more fiscal spending, spurred investor risk-taking on Monday.
Investors have grappled with whether the drop in shares now reflects enough the expected downturn in economic growth and corporate earnings that drove the broad MSCI index of Asian markets outside of Japan to a 4-1/2-year low last month.
The MSCI Asia ex-Japan fell 3.1% but is still up about 24% from the low struck in October when investors dumped assets across the board to raise cash, hitting higher-yielding currencies and commodities as well.
Japan’s Nikkei average shed 3.3% to 8,781.45 after having jumped nearly 6% the previous day.
The Shanghai Composite Index held up better than other markets, dipping 0.3% after having posted its biggest one-day gain since September on Monday. Hong Kong’s Hang Seng drifted down 0.5%.
Companies such as Japan’s Hitachi Construction Machinery climbed for a second day on hopes that China’s big spending to help underpin its slowing economy would provide a boon of new orders.
In commodities, US crude oil prices fell $1.68 a barrel to $60.73, back near a 1-1/2-year low struck last week.
The yen edged up slightly, gaining as market players cut positions favouring higher-yielding currencies that tend to perform better when stocks rise and investor appetite for risk improves.
The dollar dipped 0.2% from late US trade to 97.85 yen, while the euro was down 0.4% at 124.50 yen.
Activity in currencies was relatively muted compared with the sharp swings seen in some higher-yielding currencies against the yen over the past month.
With year-end approaching, market players said they were bracing for more hedge fund selling to raise cash holdings and prepare for investor redemptions.
The sharp sell-off across financial markets in October was driven in part by funds selling assets to boost cash holdings, especially with money markets remaining under such severe stress.
US bond markets were closed for the Veterans Day holiday, but US stock markets will be open as normal.