Asian stocks tumble to 3-year low amid Glencore-led rout5 min read . Updated: 29 Sep 2015, 08:37 AM IST
The MSCI Asia Pacific Index is heading for its biggest quarterly loss since the global financial crisis, with every major benchmark in the region retreating
Wellington/Hong Kong: Asian stocks tumbled toward an almost three- year low, the cost of insuring debt in the region surged and the yen advanced as a selloff in commodity-trading firms spooked investors.
Glencore Plc dropped by a record in Hong Kong, tracking losses in London and dragging shares of Noble Group Ltd, Mitsui and Co. and BHP Billiton Ltd lower. The MSCI Asia Pacific Index is heading for its biggest quarterly loss since the global financial crisis, with every major benchmark in the region retreating on Tuesday. The yen was stronger against all 16 major peers, while the cost of insuring Asian debt jumped to the highest since October 2013. Australian bonds tracked Treasury gains.
A 15-month rout in raw materials and energy prices is colliding with surging corporate borrowing costs to challenge the business models of previously high-flying commodity firms such as Glencore, whose London shares have dropped 73% since June. The yield on US non-investment grade corporate notes has risen for 11 straight days amid slowing Chinese growth and doubts about whether the US economy is strong enough to handle higher Federal Reserve interest rates.
“I’m expecting some continued turbulence in the market," John Carey, a fund manager at Pioneer Investment Management Inc. in Boston, which oversees $244.1 billion globally, told Bloomberg TV. “In the near term, one needs to be careful. The world economy is soft in places and there are risks out there."
More than 35 stocks fell for each that rose on the Asia-Pacific gauge, which was 2.8% lower by 10:53am in Tokyo. The MSCI All-Country World Index slipped 0.5% after its lowest close since September 2013. More than $800 billion was wiped from the value of global equities on Monday.
Japan’s Topix index slid 3.6%, set for its lowest close since 22 January as materials and health-industry stocks led declines. The Nikkei Stock Average Volatility Index jumped 10% in a second day of gains.
Mitsui and Co. tumbled 7.7%, while Mitsubishi Corp., which gets about 35% of revenue from trading metals and energy, slid 5% in Tokyo. Glencore plummeted 28% in Hong Kong, following a 29% drop in London. Singapore’s Noble Group slid 9% to an almost seven-year low.
BHP Billiton, the world’s largest mining company, dropped the most in six years, dragging Australia’s S&P/ASX 200 Index to a 2.7% slump.
Hong Kong’s Hang Seng Index retreated 3.4% after a holiday on Monday, while a gauge of Chinese companies listed in the city dropped 3.7%. The Shanghai Composite Index fell 1.3%. Taiwan markets remain shut as a typhoon lashes the island.
Futures on the Standard and Poor’s 500 Index were little changed following a 2.6% slump in the US benchmark on Monday. Contracts on the Dow Jones Industrial Average and the Nasdaq 100 Index lost 0.1%, after earlier rising as much as 0.3%.
The Bloomberg World Mining Index slid to its lowest level in almost seven years Monday. In the US, the Russell 2000 Index of smaller companies reached a fresh low for the year, while the bear market for US biotechnology shares deepened.
The S&P 500 has lost 12% from its record high reached in May and is down 8.8% this quarter.
The Markit iTraxx Asia index of credit-default swaps gained 10.5 basis points to 161.5 basis points, according to Nomura Holdings Inc. prices. The gauge is poised for its highest close since August 2013 and the second-biggest one-day gain since September 2013 excluding days when the index series changed, according to data provider CMA.
US high-yield bonds capped their longest losing streak this year on Monday, pushing the yield on an index of the securities up to 8.3%, according to data compiled by Bloomberg. The figure was 685 basis points more than Treasury yields, which was the widest spread in more than three years.
Credit traders are treating Glencore as if it’s already junk, sending the cost of insuring the commodity and mining giant’s debt to the highest level since the global financial crisis.
Derivatives traders started demanding upfront payments to protect against a Glencore default, the first time that’s happened since 2009, according to CMA. The cost of five-year credit-default swaps effectively priced in 54% odds that the company will fail to pay its debts, CMA data show.
Yields on New Zealand’s 10-year bonds fell a second day, dropping three basis points, or 0.03 percentage point, to 3.29%. The rate on similar-maturity Australian debt plunged nine basis points to 2.59%, while Japanese yields slipped 1 1/2 basis points to 0.335%.
Rates on Treasuries due in a decade were down one basis point to 2.08% after sinking seven basis points last session.
The yen added 0.2% to 119.75 per dollar after jumping 0.6% on Monday, its biggest one-day gain since 4 September. The currency typically moves at odds with Japanese stocks and has climbed 2.3% this quarter, the best performance among 16 major currencies tracked by Bloomberg.
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, was little changed after rising 0.1% last session. The Australian and New Zealand dollars were down at least 0.4%.
New York Fed president William C. Dudley said on Monday that the US economy was “doing pretty well" and that the US central bank will probably raise rates later this year. John Williams, head of the San Francisco Fed, also reiterated his expectation that borrowing costs will be boosted in 2015, adding that the jobless rate will probably fall to below 5% this year.
Data on Monday showed household spending climbed more than forecast in August, indicating consumers may help the US economy muddle through any global slowdown.
Raw materials mostly held onto losses following a 1.3% slide in the Bloomberg Commodity Index last session. The gauge has declined 15% this quarter as the prospect of China undershooting its growth target of about 7% dims the outlook for global demand.
Nickel for three-month delivery sank 1.1% in a second day of losses, while copper lost 0.4% to $4,945 a tonne in London, after retreating the past five days.
West Texas Intermediate crude was little changed at $44.51 a barrel following Monday’s 2.8% drop, while Brent was steady at $47.31. An 8.8% drop in profits at Chinese industrial companies hit oil and other raw materials on Monday. Traders are also looking ahead to Wednesday’s stockpiles data out of the US, with analysts predicting a third week of declines. Bloomberg