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Asian Markets Follow Wall Street’s Lead in a Broad Sell-Off China Suffers as the World Follows Wall Street’s Slump
(about 7 hours later)
HONG KONG — Investors across Asia — from Hong Kong to Seoul, Tokyo to Shanghai — appeared to get the same memo on Friday morning: Sell. HONG KONG — As the world followed Wall Street’s plunge, investors on Friday turned their backs on a bet they couldn’t get enough of just days ago: China.
Following drastic losses in the United States on Thursday, stock markets across the region fell deep into the red in morning trading. The sell-off was particularly strong for shares of companies based in mainland China, which have been among the world’s best performers. Markets in Southeast Asia were down as well. Chinese stocks were among the biggest casualties in a broad sell-off across Asia that followed Thursday’s rout in the United States. European markets were also down in morning trading, though by less drastic levels.
Futures contracts that track stocks in the United States were up and down during the Asian trading day, offering conflicting signals about what Friday’s markets would do. By contrast, futures contracts that track stocks in the United States traded higher during the European day, suggesting investors on Friday might be more optimistic when trading begins there.
The sell-off, which started earlier this week, was prompted by fears of rising inflation in the United States as strong data, including low unemployment and high corporate profits, suggested the economy’s resilience. Friday’s tough day of trading put Chinese shares by some measures into correction territory — shorthand for when stocks fall by 10 percent or more from their peak. Chinese shares have joined those in the United States, which also fell into correction territory this week.
Rising inflation could lead the Federal Reserve to raise its interest rates sooner than expected, setting off a series of reactions around the globe as the cost of borrowing in American dollars would begin to rise. Chinese shares are falling for some of the same reasons they are falling in the United States, including worries about inflation and the Federal Reserve’s raising lending rates. But they share one other crucial trait with shares in the United States: They have soared like gangbusters in recent months.
But the sell-off Friday morning also served as a reminder that major markets in Asia had risen greatly, and in the minds of many analysts were ready to come down.
For example, last year was stellar for shares of Chinese companies that trade around the world. The MSCI China stock index, which tracks shares of some of China’s biggest companies, is still up nearly 50 percent since the beginning of last year even after the recent stock slump.
“We are witnessing the longest rally in the history of Chinese stocks,” analysts at Goldman Sachs wrote to clients early this week, adding, “A tactical correction appears overdue and markets could fall further.”“We are witnessing the longest rally in the history of Chinese stocks,” analysts at Goldman Sachs wrote to clients early this week, adding, “A tactical correction appears overdue and markets could fall further.”
Shares in Shanghai were down more than 4 percent midday Friday, while Hong Kong shares were down more than 3 percent. Shares in Tokyo were down 2.7 percent. China’s shares have benefited from signs of accelerating growth there. An improved global outlook has led to more purchases of Chinese exports. The authorities also seem to have slowed what had been an alarming borrowing binge.
Investors were also keeping a careful eye on China’s currency, the renminbi. The currency, which is carefully managed by the Chinese government, took a hit on Thursday and fell by as much as 1.2 percent. Global investors have been drawn to the growing heft of China’s internet companies, like the Alibaba Group, an e-commerce company that is traded in New York, and Tencent Holdings, a conglomerate with businesses in social messaging and online games that is traded in Hong Kong. While shares of both are down by double digits since the beginning of February, both are still well above levels of just a year ago, putting them among the world’s most highly valued technology companies.
Many other Chinese shares are still way up from a year ago despite the drop. The MSCI China stock index, which tracks shares of some of China’s biggest companies, is still up more than 40 percent since the beginning of last year.
The Chinese market is not without reasons to worry, however.
Investors this week kept a careful eye on China’s currency, the renminbi. The currency, which is carefully managed by the Chinese government, took a hit on Thursday and fell by as much as 1.2 percent before strengthening a bit on Friday.
Before that, the currency had been rising steadily against the American dollar, leading to worries that Beijing could step in further to contain it. World markets can be sensitive to sharp swings in the renminbi. In 2015, the Chinese government devalued the currency, sending global markets into turmoil.Before that, the currency had been rising steadily against the American dollar, leading to worries that Beijing could step in further to contain it. World markets can be sensitive to sharp swings in the renminbi. In 2015, the Chinese government devalued the currency, sending global markets into turmoil.
“You can twist yourself into knots trying to figure out what happens day to day,” said Andy Rothman, investment strategist at Matthews Asia.“You can twist yourself into knots trying to figure out what happens day to day,” said Andy Rothman, investment strategist at Matthews Asia.
“But the Chinese government has a lot of control on the currency,” he added. “They can’t control the direction but they can control how much it moves in that direction.”“But the Chinese government has a lot of control on the currency,” he added. “They can’t control the direction but they can control how much it moves in that direction.”
Still, analysts said shares in China and through much of Asia would continue to follow Wall Street’s lead.
“Asia is going to be the tail that gets wagged by the U.S. dog,” Timothy Moe, chief Asia Pacific strategist at Goldman Sachs, said on Friday.
Europe could be a different matter.
In the logic of stock markets, where bad news can sometimes be good news, recent gains in the value of the euro against the dollar and other major currencies were expected to slow exports and brake the eurozone economy.
Slower growth would, in turn, dissuade the European Central Bank from raising interest rates too soon, and thus prolong the easy credit conditions that were partly responsible for the bull market.
“The E.C.B. has, in fact, a vital interest in keeping euro area interest rates at low levels,” Ralph Solveen, an analyst at Commerzbank, said in a note to clients on Friday.
Shares in Shanghai fell about 4 percent on Friday, while Hong Kong shares lost 3.1 percent. Shares in Tokyo fell 2.3 percent.