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Market rout in Asia suggests another day of investor losses

HONG KONG — Markets across Asia shuddered on Thursday (Oct 11) after a drop in stocks in the United States over concern about rising interest rates and increased tensions between Beijing and Washington.

Market rout in Asia suggests another day of investor losses

No market in Asia was spared a sweeping sell-off as stocks in Shanghai, Tokyo, Seoul and Hong Kong dropped by four per cent or more in a punishing morning session of trading.

HONG KONG — Markets across Asia shuddered on Thursday (Oct 11) after a drop in stocks in the United States over concern about rising interest rates and increased tensions between Beijing and Washington.

No market in Asia was spared a sweeping sell-off as stocks in Shanghai, Tokyo, Seoul and Hong Kong dropped by four per cent or more in a punishing morning session of trading.

The Straits Times Index fell 2.69 per cent, a more than 20-month closing low. Various index component stocks such as Singapore Exchange, Singapore Airlines, City Developments and OCBC hit fresh 52-week lows.

Futures markets that track the expected performance of stocks in Europe and the US suggested the sell-off could continue.

On Wall Street, stocks opened down slightly on early Thursday trading, and indexes continued their slide in the day's volatile session as investors worried about rising interest rates and braced for a trade war hit to corporate earnings a day ahead of the quarterly reporting season kickoff.

In its sixth consecutive day of declines, the Standard & Poor’s 500 index closed down 2.1 per cent after shedding 3 per cent in Wednesday's session. But at its session low the benchmark fell 2.7 per cent to its lowest level since early July.

The S&P's 11 major sectors all ended the day in the red with only the communications services sector managing a decline of less than 1 per cent.

The Dow Jones Industrial Average fell 545.91 points, or 2.13 per cent, to 25,052.83.

The Nasdaq narrowly avoided confirming a correction. During the session it fell as much as 10.3 per cent from its Aug. 29 closing record high but ended the day 9.6 per cent below the record.

A report showing muted inflation helped send bond yields lower, easing concerns that had helped start a global sell-off.

MSCI's gauge of stock performance in 47 countries dropped 2.2 per cent, falling below its February lows to trade at its lowest since October 2017.

Gold, typically seen as a safe-haven asset during times of extreme volatility, rose as sliding global stock markets prompted risk-wary investors to buy the metal, and a drop in US Treasury bond yields helped push the dollar lower.

In equities, Wall Street slid as risk-appetite showed no signs of picking up and volatility spiked. After hitting an intraday high of 28.84, the CBOE Volatility Index, popularly known as the "fear gauge", ended the day up 2 points at 24.98, its highest close since Feb 12.

Energy was the biggest loser with a 3.1 per cent drop as oil prices hit two-week lows after an industry report showed a bigger-than-expected build in US crude inventories.

The financial sector fell 2.9 per cent, also hurt by a 2.7 per cent drop in bank stocks a day before three of the biggest banks were to report quarterly results.

Wall Street expects S&P 500 companies to report third-quarter earnings growth of 21.3 per cent for the third quarter according to I/B/E/S data from Refinitiv.

The technology sector, the biggest loser in Wednesday's sell-off, closed down 1.3 per cent on Thursday.

The global stock rout started in New York on Wednesday, when the S&P tumbled 3.3 per cent, its biggest drop in eight months.

It was the fifth day of selling, signaling a change in mood on Wall Street, which had been ebullient amid strong corporate profits.

But concerns have started to weigh. With signs of rising inflation, the Federal Reserve is expected to ratchet up interest rates further, which could raise the cost of borrowing in the US and around the world.

"When you have a shock day like yesterday, people are caught off guard, and there are a lot of adjustments going on below the surface. There tends to be a lot of volatility the day after a shock day, and over the next several days or weeks," said Mr Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta, on Thursday.

The market damage was particularly acute in China, where signs of economic softness and worries about the impact of President Donald Trump’s trade war have pushed down stocks for months.

Over the weekend, the People’s Bank of China unleashed US$175 billion (S$241 billion) into the economy to help shore it up. Worried about the impact of negative information on its citizens, China has censored negative economic news.

The tensions with Washington appear to be only getting worse. On Wednesday, US officials said they had charged a Chinese intelligence official with espionage after he was extradited from Belgium.

Washington officials also said on Wednesday they would more aggressively scrutinise corporate deals by foreign investors in the US, in a move aimed primarily at China.

Chinese tech stocks took the biggest losses. The country’s biggest and best-known companies, including internet giant Tencent, telecommunications firm ZTE and Meituan Dianping, an internet service platform, were trading down more than 7 per cent.

In Shanghai, where the market was already in bear-market territory, stocks were down 4.3 per cent and hovering around their lowest level since November 2014.

Some market observers questioned whether the government could step in to stem losses, as it did in 2015 when a summer stock market rout set off a global sell-off.

At the time it banned short selling, suspended initial public offerings and prohibited investors who owned more than 5 per cent of a stock from selling it. Officials also deployed a “national team” of state-owned financial institutions to buy up stocks and help bolster the market as it tumbled more than 25 per cent.

In other Asian capitals, there seemed no end to selling. In Tokyo, stocks crept down 4 per cent, while investors in Seoul pushed the market down 3.6 per cent.

In Hong Kong, where many Chinese companies are listed, the market was down 3.8 per cent. The Vietnamese index plunged nearly five per cent.

The worst hit was Taiwan, where the market plunged 6.2 per cent in morning trading. AGENCIES

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