Global wipeout: Asian stocks deepen fall over virus panic

Japan’s Nikkei tumbles 10 percent with other Asian stock markets not far behind as investors worry over economic hit.

Asia‘s stock markets were hammered on Friday as panic gripping world financial markets deepened and even safe-haven assets such as gold and bonds were ditched to cover losses in the wipeout triggered by fears of the economic losses caused by the spreading coronavirus pandemic.

Japan’s Nikkei plunged 10 percent while Australia’s benchmark fell as much as 7 percent and is on track for its worst week on record.

New Zealand’s index was last down more than 8 percent, its biggest-ever intraday drop.

In Korea, the Kosdaq fell 8 percent, triggering a 20-minute trading halt.

Currency trading was erratic amid poor liquidity and a rush to secure financing in United States dollars, the world’s top funding currency.

After its worst crash since Black Monday in 1987 overnight, Dow futures fell about 1 percent in Asia, while S&P 500 futures were off 0.7 percent.

“There is a sense of fear and panic,” said James Tao, an analyst at stockbroker Commsec in Sydney, where phones at the high-value client desk rang non-stop.

‘Fight or flight’

“It’s one of those situations where there is so much uncertainty that no one quite knows how to respond … if it’s fight or flight, many people are choosing flight at the moment.”

The plunge, as the coronavirus pandemic spreads, gathered pace after US President Donald Trump spooked investors with a move to restrict travel from Europe and after the European Central Bank disappointed markets by holding back on rate cuts.

More than 4,613 people have died and over 126,000 have been infected globally, according to the World Health Organization.

On Wall Street, trade was halted on the S&P 500 after its fall exceeded permitted amounts, triggering so-called circuit breakers.

It fell further when trade resumed, eventually losing 9.5 percent to close 27 percent below February’s peak.

Gold, usually a safe harbour in times of panic, fell 3.5 percent, yields on long-dated US Treasury bonds shot up, and in currency markets, investors scrambled for dollars.

“We worry that there could be a chance of a dollar-funding squeeze,” said Stuart Oakley, Nomura’s global head of flow FX in Singapore, as businesses scramble to borrow dollars to cover liabilities.

“When everyone does that at the same time, it can result in a massive demand for dollars. And ultimately … there becomes a shortage and the dollar-funding level explodes.”

In a televised address late on Wednesday, Trump imposed restrictions on travel from Europe to the United States, shocking investors and travellers.

Traders were disappointed after hoping to see broader measures to fight the spread of the virus and blunt its expected blow to economic growth.

The New York Federal Reserve surprised investors by pumping huge amounts of cash into the banking system, aiming to head off the sort of dislocation that saw markets seize up during the 2008 financial crisis.

After adding $500bn on Thursday, it will inject another $1 trillion today in an effort to stop borrowing costs from rising.

MSCI’s gauge of stocks across the globe shed 9.51 percent and was down more than 20 percent from its 52-week peak.

The VIX volatility index – Wall Street’s “fear gauge” – and an equivalent measure of volatility for the Euro Stoxx 50 hit their highest since the financial crisis.

In early Asia currency trade, volumes were light and the tight liquidity exaggerated price moves. The dollar handed back some gains to the yen, pound and franc and Australian dollar lifted almost 1 percent from an 11-year low to $0.6271.

The euro found footing at $1.1184 after falling as far as $1.1054 overnight.

Source: Reuters


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