By Jake Maxwell Watts
Asian markets are on track for one of their worst quarters since
the global financial crisis, with the double threat of higher
interest rates in the U.S. and China's slowdown unlikely to ease
heading into October.
While regional stocks and currencies recovered from Tuesday's
steep losses in the last trading day of the quarter, the period was
a bruising one for nearly all of Asia's markets.
China's main stock market posted its worst quarter since 2008
and its smaller Shenzhen index, in at least two decades. Markets in
Singapore and Indonesia are set to post their worst quarters since
the financial crisis. The MSCI Asia ex-Japan Index fell 19.1% from
the beginning of the quarter through Tuesday's close.
Currencies in Asia also are on track for their biggest quarterly
losses in years. Asia's worst performing currency, Malaysia's
ringgit, lost as much as 14% of its value this quarter and is down
26% for the year, while Thailand's baht has weakened close to a
five-year low, with its worst quarterly performance since 2000.
Adding to the gloom, industrial metals, including copper and
zinc have fallen to multiyear lows. Prices for Brent crude oil, the
international benchmark, have halved since this time last year.
"Risk forecasts are turning into a pessimist's paradise," said
Olivier d'Assier, managing director for Asia Pacific at risk
consultant Axioma. "If the risk forecast is low, don't believe it,
and if it's high, it's probably worse than you think," he said.
The surprise devaluation of China's currency in August, after
weeks of roller-coaster stock-market performance, raised the
possibility that a slowdown in the world's No. 2 economy may be
deeper than official data reveals, with a fresh reading on the
factory activity due Thursday. That's a challenge for economies in
the region reliant on Chinese demand for their exports.
Moreover, the prospect of higher interest rates in the U.S.
still looms large, which already has started to draw money from the
region. Investors pulled $40 billion from emerging-market stocks
and bonds in the second quarter, the worst quarterly performance
since the throes of the global financial crisis, according to the
Institute of International Finance.
While the U.S. Federal Reserve said it would delay raising
interest rates earlier this month--citing instability in China and
other emerging markets, among several factors--that emphasis has
started to recede from more recent comments, leaving the chances of
an increase before year-end on the table.
That has darkened the outlook for regional economies and sent
government bond yields higher, as foreign investors shed their
holdings. Yields, which move inversely to prices, on five-year
Indonesian government bonds rose steeply this quarter to their
highest since 2009, having risen 1.6 percentage points over the
period to 9.767% Wednesday. Malaysian five-year benchmark yields
posted their largest quarterly rise since early 2009.
The dynamic of rate uncertainty and a slowdown in China--one of
the world's biggest consumers of oil, metals and food--has
pressured commodities, too. Many are priced in U.S. dollars, and a
stronger currency on expectations of higher rates has snuffed out
demand as materials got more expensive for global buyers.
Prices of copper--a proxy for consumer demand, since it shows up
in items from refrigerators to televisions--remains close to a
six-year low reached after China's devaluation. The red metal
rebounded by mid-September after some producers announced
production halts, but drifted lower again to $4,915 per ton.
Reports overnight about protests at a Peruvian mine and supply cuts
in Chile helped the metal recover in Asia on Wednesday.
Worries about oversupply and weak Chinese demand also have
pressured prices of zinc, which fell to a five-year low last week.
Zinc is primarily used as an anti-corrosive for steel, of which
China is the largest producer. It is currently trading at $1,661.50
per ton.
Earlier this week, concerns about the debt load of
mining-and-trading firm Glencore PLC gave investors fresh reasons
to fear the ripple effects of China's waning appetite for
commodities, and sparked heavy selling across global markets.
By Wednesday, Asian stocks rebounded from near their lowest
levels this year, following a slight gain overnight in U.S.
markets.
"We could see some steady trade in the Asian equity markets
today, but...a full risk-on mode is very unlikely. Furthermore,
most Asian bourses are expected to cap off September with another
month of losses," said Bernard Aw, market strategist at IG.
In the three months to Tuesday's close, Indonesia's main index
had fallen nearly 15% and China's two main stock markets had fallen
about 30% each.
In the last trading day of the quarter, the S&P/ASX 200
index in Australia rose 2.1% to 5021.60, while Japan's Nikkei 225
gained 2.7% to 17388.15. Still, the Nikkei closed out its worst
quarter since 2010 and the ASX its worst since 2011.
In other markets, China's Shanghai Composite gained 0.5% to
3052.78 and the Shenzhen Composite gained 0.3% to 1716.78.
Hong Kong's main index was up 1.7%, South Korea's Kospi gained
1% and Singapore's FTSE Straits Times Index rose 0.3%.
In currency markets, the Japanese yen weakened slightly against
the U.S. dollar. One U.S. dollar bought Yen120.07 Wednesday,
compared with Tuesday's close of Yen119.71. The Australian dollar
traded at US$0.70 against the U.S. dollar, compared with US$0.6982
a day earlier.
Brent crude oil is down 0.8% in Asia trade at $48.48 a
barrel.
Later this week, investors will get an update on the U.S. job
market, which could give guidance on the Fed's timeline for rate
increases. On Thursday, China will release manufacturing data for
September, though Chinese markets will close from Thursday through
to Oct. 7 for a national day holiday. Hong Kong's markets will
close Thursday.
Anjani Trivedi and Biman Mukherji contributed to this
article.
Write to Jake Maxwell Watts at jake.watts@wsj.com
(END) Dow Jones Newswires
September 30, 2015 04:00 ET (08:00 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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