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Asian Stocks Down, Following Global Concerns Over Italy's Political Turmoil

30 May 2018 5:02 am
By Joanne Chiu 

Asian stock markets tumbled Wednesday following overnight declines in the U.S. and Europe. Key markets including Japan, Hong Kong and mainland China fell more than 1.5%. Japan's Nikkei average shed 1.7% to hit a six-week low, while South Korea's KOSPI slipped close to 2% to a two-and a-half month low. Australia's benchmark S&P/ASX 200 fell 0.5% and markets in Southeast Asia, including Indonesia, Thailand and Malaysia, all fell as they returned to action following a Tuesday holiday.

Wednesday's Big Theme

Asian markets' decline reflected fears over the potential regional fallout of Italy's political turmoil.

What's Happening

Investors in Asia retreated from equities, their appetite for risk sapped by Italy's crisis and a consequent rally by safe-haven assets including U.S. Treasury bonds, gold and the yen. MSCI's broadest index of Asia-Pacific shares outside Japan was down 1.1%.

Regional giants that rely on exports--including Honda Motor Co., Sony Corp. and Panasonic Corp.--saw sharp declines as the safe-haven yen continued to rebound.

The benchmark Shanghai Composite Index fell 1.8% midday to its low over the past year, fueled by the heavy selling of trade-related stocks, including shipping and port operators.

The moves followed renewed trade concerns, after the Trump administration said Tuesday that it plans to follow through on its threat to apply new tariffs to Chinese imports, among other actions aimed at restricting Beijing from accessing sensitive U.S. technology.

Market Reaction

Nick Wilcox, investment specialist at J.P. Morgan Asset Management, said investors need to wait for clarity in Italy.

"Over time Europe has shown more meaningful resilience than most investors have expected and as a result we think any spillover implications for Asia are likely to be limited," he said.

Eli Lee, head of investment strategy at the Bank of Singapore, added that "classic contagion pathways, reminiscent of the 2011-2012 European crisis, remain live," referring to the potential that the turmoil will spread to Asia. Italian 10-year yields have reacted dramatically, and the spread between Italian and German bond yields been driven to its widest since the European crisis, he added.

"What we see now is the panic manifesting itself into outrageous fear" with fixed income markets in a frenzy, said Stephen Innes, Asia-Pacific Head of Trading at OANDA.

In addition to loading up on U.S. Treasurys, "investors are seeking shelter under the U.S. dollar and Yen umbrella awaiting the dust to settle in Europe" he said.

Elsewhere

Italy's woes rippled across the Eurozone and the U.S., with the Dow industrials falling 1.6%, putting it back into the red for the year. The euro also fell to a 10-month low and pushed up borrowing costs for the Italian government. The U.S. S&P index futures rebounded less than 0.1% in Asia on Wednesday.

Write to Joanne Chiu at joanne.chiu@wsj.com
 

(END) Dow Jones Newswires

May 30, 2018 01:02 ET (05:02 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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