Hong Kong: Asian stocks slipped to a one month low on Monday 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.
Powering ahead: Investors look at a board showing stock information at a brokerage house in Wuhan, Hubei province. China’s key stock index rose 2.7% on Monday, its biggest one-day gain in more than three weeks. Reuters
Chinese manufacturing activity accelerated to an 18-month high in October, underscoring Asia’s engine of growth is powering ahead even as demand from the US and other major economies remains weak.
The dollar dipped while oil prices edged higher to bounce back from a sharp drop on Friday along with shares. US crude oil rose nearly 1% toward $78 a barrel.
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.
“We have seen modest redemptions out of our pool of funds and that is mainly because of a brief round of profit-taking and risk reduction by clients who allocated early this year,” said Adam Matthews, head of the Asian client portfolio management team at JP Morgan Asset Management in Hong Kong.
“Judging from the money parked on the sidelines by pension funds, insurers and private banks its difficult to believe the market can fall more than 10-20% in the short term. In the long term we don’t expect the yo-yo like volatility in the region’s markets to continue as institutional allocation is here to stay,” said Matthews, who manages funds worth $58 billion.
The MSCI index of Asia-Pacific shares outside Japan fell about 1%, touching a one-month low but still up some 58% this year. Investors sold $530 million in shares in Asia ex-Japan last week but have snapped up $50.6 billion so far this year, with South Korean and India taking in the biggest amount of funds.
Japan’s Nikkei average dropped 2.3%, 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.
Thomson Reuters data shows that 80% of the 344 companies in the S&P 500 that reported earnings so far have beaten expectations.
China’s key stock index rose 2.7%, its biggest one-day gain in more than three weeks, as solid earnings and upbeat manufacturing data powered a sharp rebound from early weakness. But the Nasdaq-style ChiNext market for start-up stocks, which began trade last Friday with a speculative surge, was broadly weaker as profit taking sent about two-thirds of its 28 stocks down by their 10% daily limit.
In Hong Kong, shares narrowed losses to well below a percent as gains in China encouraged some bargain hunting, but exporter Li & Fung slumped on gloomy US consumer sentiment.
Australian stocks fell more than 2%, followed by a 1.4% loss in South Korea. Falls in Taiwan and Singaproe were marginal, while the Indian stock market was closed for a public holiday.
Parvathy Ullatil contributed to this story.