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Asian markets tumble as global equity sell-off deepens

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Asian stock markets tumbled on Monday as the global equity market sell-off deepened following Wall Street’s worst trading day in two years on Friday.

Hong Kong’s Hang Seng index fell by as much as 2.7 per cent, while the Hang Seng China Enterprises index of large-cap Chinese companies listed in Hong Kong dropped by as much as 3.1 per cent to its lowest level since December.

In Japan, the Topix index slid 2.2 per cent while South Korea’s Kospi Composite dropped 1.3 per cent and Australia’s benchmark S&P/ASX 200 index fell 1.6 per cent.

The losses came on the heels of Wall Street’s worst trading session in nearly two years on Friday, and as the 10-year US Treasury yield, which moves inversely to price, rose nearly 4 basis points to a high of 2.8831 per cent in Asia.

The yields on 10-year Australian government bonds also surged, rising by close to 11 basis points to 2.933 per cent.

European stock indices were expected to fall in opening trade, adding to heavy losses made on Friday. According to early opening calls from spread betting agency. London Capital, the FTSE 100 will lose a further 1.1 per cent, with Frankfurt’s Xetra Dax 30 expected to fall 1.2 per cent. That would follow declines of 0.6 per cent and 1.3 per cent for the indices, respectively, made over Friday.

Economists said the sell-off was sparked by concern that inflation in the US is rising at a faster than expected pace, following strong wage growth data on Friday.

The surge in wages and robust economic data raise the possibility that the Federal Reserve could look to tighten monetary policy this year more aggressively than anticipated.

Richard Jerram, chief economist at the Bank of Singapore, said: “Financial markets have recently been focused on Fed policy and rising bond yields, so the negative reaction to strong wage growth was unsurprising.”

Mohammed Apabhai, Citigroup’s head of Asia-Pacific trading strategy, noted there is also “uncertainty over what the new Fed governor is going to do”.

However, JPMorgan Asset Management chief global strategist David Kelly disagreed with the “popular narrative” that equities have been “tanking” because of fears interest rates would rise due to higher inflation.

“The somewhat untidy but nevertheless more plausible explanation is that both the bond market and stock market were overdue for a correction after a remarkably placid two years,” Mr Kelly said.

The week ahead could be “bumpy”, he added, “but as the markets move and commentary becomes extreme, investors would do well to maintain some scepticism about what they read on the web and focus more on the basics of fundamentals, valuation and positioning.”

In Asia, the sell-off was also fuelled by the view that equity markets’ stellar start to the year could soon run out of steam. Investors poured a record amount of money into Asia and emerging market funds at the end of January, reaching an all-time high in the last week of the month at $7.9bn.

Analysts at Morgan Stanley said in a recent research note that they expect a “meaningful” near-term correction in the Hang Seng index, noting that the index is “at its most technically overbought since April 2015”.

However, some analysts reckon the sell-off is temporary and the outlook for Asian stocks remains positive.

“The sell-off in this morning’s Asia markets is a natural part of a market cycle where we are seeing inflationary pressures following good corporate earnings, so this is not the time for investors to panic,” said Felix Lam, an Asian equity fund manager at BNP Paribas Asset Management. – Copyright The Financial Times Limited 2018.

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