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North Korean Threats Rattle Asian Markets -- Update

22 Sep 2017 4:46 am
By Lucy Craymer 

Equity markets across the Asia-Pacific were down on Friday, with stocks in Japan reversing early gains following fresh threats from North Korea, while China-related stocks declined on a credit-rating downgrade.

North Korean Foreign Minister Ri Yong Ho said late Thursday in New York that the country may consider a nuclear test of "unprecedented scale" in the Pacific Ocean.

Those comments came shortly after North Korean leader Kim Jong Un said he was considering the "highest level of hard-line countermeasure" in response to President Donald Trump's warning that the U.S. would annihilate North Korea if forced to defend itself or its allies.

This was likely causing investors to be "antsy heading into the weekend, " said Emmanuel Ng, an analyst at OCBC Bank. He noted that it was also likely to continue support buying in the Japanese yen because of its reputation as a safe-haven currency.

The Japanese yen spiked following the report of the nuclear-test threat, with the U.S. dollar-yen pair falling to a low of 111.66 before recovering to around 111.78. The U.S. dollar was still down around 0.6% from Thursday's Japan market close.

Gains in the yen sent the Nikkei Stock Average down 0.3% as a stronger currency would hurt the country's key export stocks. In South Korea, the Kospi also extended its decline and was down 0.7%.

Chinese shares were broadly down after rating firm Standard & Poor's downgraded the country's sovereign credit rating, due to risks associated with its increasing debt. The Shanghai Composite Index was off 0.5% at the midday break, while the Shenzhen benchmark was also off 0.5%.

Still, analysts don't expect the selling pressure to continue, as the S&P downgrade had been anticipated by the market, and brings its rating in line with Moody's, which downgraded the nation in May, and Fitch, which made its cut in 2013.

"Obviously the Chinese markets have rallied well since the initial Moody's downgrade" in May, said David Millhouse, head of China research at Forsyth Barr Asia.

In Hong Kong, the Hang Seng Index was down 0.8% at the midday break, as S&P also downgraded its credit rating for the city, tracking its decision for mainland China.

Key Chinese banks listed in the city were weaker following the S&P downgrade, though broker CLSA said it believes asset quality at the big banks has bottomed out as a result of reduced off-balance sheet activities, and a strengthened repayment ability in the manufacturing and mining segments. The broker retained an overweight rating on the banking sector.

Among the biggest state banks, China Construction Bank and Agricultural Bank of China both were off 0.6%, while ICBC and the Bank of China were each down 0.5%.

Amid the broad declines, the outlier on Friday was Australia, with its benchmark stock index in positive territory, boosted by some bargain hunting in stocks following recent declines. The S&P/ASX 200 was last up 0.3%.

Though there was a sharp fall overnight in metals prices--a factor that would normally hurt the Australian market--this was largely being offset by a weaker Australian dollar, said Ric Spooner, chief market analyst at CMC markets.

Iron-ore prices continued their recent weakness and are trading around 1% lower on the Dalian Commodity Exchange as concerns about oversupply in the market remain. Oil prices, however, remain largely unchanged as the market awaits a meeting of the global oil cartel on Friday.

Write to Lucy Craymer at Lucy.Craymer@wsj.com

(END) Dow Jones Newswires

September 22, 2017 00:46 ET (04:46 GMT)

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