Hong Kong: Asian stocks slid on Monday, with Seoul hitting a two-month low after a sell-off in banking shares slammed Wall Street, a slide viewed as a sign that investors are losing faith in the economic recovery.
Worries about the US financial sector resurfaced after CIT Group Inc, the lender to small and mid-sized US companies, filed for bankruptcy and an accounting expert said Citigroup may need further write-downs.
But the fallout on Asian equity markets was limited and higher-yielding currencies quickly recovered from early losses, with some market players blaming the volatile moves on profit-taking and portfolio reshuffling before year-end.
The dollar dipped while oil prices edged higher to bounce back from a sharp drop on Friday along with shares, with US crude oil up 25 cents a barrel to $77.25.
Hedge funds and other players were cited as sellers of emerging market stocks and currencies last week, looking to take profits on their best trades before many funds close their books for the year in November.
“Further profit-taking in risk positions is expected this week and into the end of the year,” said Patrick Bennett, Asia currency and rates strategist at Societe Generale in Hong Kong.
The MSCI index of Asia-Pacific shares outside Japan fell 1.5%, touching a one-month low, while the Thomson Reuters index of regional stocks shed 1.8%.
Japan’s Nikkei average dropped 2.7%, mirroring the 2.8% slide in the US S&P 500 on Friday -- its biggest one-day drop since July. But futures on the S&P edged up in Asia, providing some relief that the selling pressure would not extend into the new month.
A spike in the VIX volatility index on the S&P, known as Wall Street’s fear gauge, also stirred worries that investors were starting to brace for a deeper drop in stocks.
But the move in the equity options market was not mirrored in Asia. Implied volatility, a gauge of option market expectations of future moves, on Nikkei futures edged up only slightly.
The slide in US shares came despite an array of positive third-quarter earnings. According to Thomson Reuters data, 80% of the 344 companies in the S&P 500 that reported earnings so far have beat analyst expectations.
Gains in higher-yielding currencies, weighed on the dollar and the gauge of its performance against six major currencies dipped 0.1% to 76.277. The Australian dollar rose 0.2% to $0.9007, while the euro edged up 0.2% to $1.4740.
Some of the early volatility in higher-yielding currencies was due to a sharp fall in the South African rand tied to selling by a Japanese margin trader broker. Traders suspected that a mistaken trade may have sparked the sharp drop.
Government bonds gained on the stock market woes. The benchmark 10-year Japanese government bond yield dipped 2 basis points to 1.385%, down from a 2- month high reached last week.