Pacific Money

Asian Stocks’ Wild Ride

Indexes around the region have erased most of their gains for the year. Is a bottom in sight?

Anthony Fensom

No one rings a bell at the top of the market, but has it already sounded at the bottom?

More than $2.5 trillion has been erased from the value of global equities since U.S. Federal Reserve chairman Ben Bernanke’s May 22 warning that its stimulus policy could be “tapered,” and Asian stocks have felt the impact.

In Japan, the money printing of Abenomics initially caused the yen to slide and the Nikkei Stock Average to outpace the rest of the world, posting an 80 percent gain since mid-November. But with the Tokyo bourse’s recent retreat along with the rest of Asia, the bears have returned.

On Thursday, the benchmark Nikkei lost over 6 percent to close at 12,445, down about 20 percent from its May peak over 15,600 and officially entering bear market territory. The fall was attributed to fears over the Fed’s policy, while analysts claimed a lack of detail in Japanese Prime Minister Shinzo Abe’s “third arrow” structural reforms.

“It’s a kind of a chicken-and-egg situation – volatile markets keep buyers away and the absence of buyers leads to market volatility. We are trapped in a negative spiral right now,” Daiwa Securities senior strategist Hirokazu Kabeya told AAP newswire.

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The Hong Kong exchange is also in bear territory, with the benchmark Hang Seng Index falling to an eight-month low Thursday on worries over the Fed as well as mainland China’s economy.

In China, the benchmark Shanghai Composite Index reached a six-month low Thursday, with analysts concerned that weaker exports and inflation data could indicate a faster slowdown than previously estimated.

Singapore shares have also hit a six-month low, with the benchmark Straits Times Index falling below its value at the start of 2013.

In South Korea, the benchmark Korea Composite Stock Price Index (KOSPI) fell below 1,900 for the first time since November, with the nation’s central bank keeping its key interest rate steady at 2.5 percent.

Australia’s sharemarket has also entered into a “correction” after retracing most of its yearly gains. On Thursday, the benchmark S&P/ASX200 index finished the day’s trading at 4,695, down by more than 10 percent since its May high of 5,220.

World Bank cuts outlook

The mood of traders was not aided by the World Bank, which on Wednesday cut its outlook for global growth to 2.2 percent, down from its January forecast of 2.4 percent. The bank warned that a deeper recession in Europe and slowing emerging economies would ensure softer growth in line with the “new normal”.

The East Asia and Pacific economy is forecast to expand by 7.3 percent in 2013, rising to 7.5 percent next year. This reflects weaker growth in China, which is expected to expand by 7.7 percent in 2013 but accelerate to above 8 percent in 2014 and 2015.

“Risks to the region include those surrounding the gradual reduction in Chinese investment, Japanese quantitative easing, rapidly expanding credit, and rising asset prices,” the bank said in a statement.

Turnaround in sight?

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Yet despite the gloomy scenario, positive U.S. data, including the biggest rise in retail sales in three months and fewer claims for unemployment benefits, have pointed to a brighter global outlook.

“At the end of the day, the policymakers are going to re-stimulate if they think the economies are slowing, so there’s sort of a catch here in that the market corrects too far on the view that stimulus is being pulled back, and the only reason stimulus is being pulled back is because economies are doing better and earnings are going to be doing better,” BT Investment Management’s Crispin Murray told the Australian Financial Review.

Mitsubishi UFJ Morgan Stanley Securities’ Glen Wood told CNBC that he expected the Nikkei index to reach 20,000 over the year ahead, based on Abenomics reforms.

“A lot of the global long-only investors are still underweight Japan…and we need to see specific plans coming from the government,” he said. “But it’s a long-term story here, and we’re talking six, 12 to 18 months [and] moving to a weaker yen…so if I was a long-term fundamental investor I’d be looking at this as a buying opportunity.”

US billionaire investor George Soros has reportedly re-entered the Japanese market, after scoring gains of more than $1 billion previously on bets against the yen and Japanese stocks. “Buy when others are selling” may be an old mantra, but the return of foreign investors could herald brighter times ahead for markets.