Risk assets across Asia fell heavily for a second consecutive session on Thursday, following a dramatic reversal midway through the session.
Initially risk assets jumped out of the blocks, buoyed by a late recovery on Wall Street and a continued rebound in crude prices.
Stocks in most major centres were up by more than 1.0%. The Nikkei 225 and Hang Seng in Hong Kong, after suffering huge declines of more than 3% on Wednesday, were the standout performers, trading up around 2% within the first hour of trade.
Other risk assets were also climbing. The Australian and New Zealand dollars were both up by more than 0.5% while crude futures, after staging a dramatic bounce off multi-decades lows in U.S. trade, were up close to 2%.
Even an early decline in Chinese stocks, plunging close to 2%, wasn’t enough to derail the rally. It looked like confidence was finally returning.
And then it all fell apart.
Despite a late rally in Chinese stocks into the mid-session break – something that would normally boost sentiment across the region – risk assets began to roll over upon the resumption of trade in Japan.
What started as a modest retracement ended up snowballing into yet another ugly, confidence-sapping rout.
The ASX200 in Australia was one of the few markets to finish higher, closing up 0.46%. If not for its earlier close compared to other markets it too could have finished lower, as it sank in late trade.
The Nikkei 225 in Japan was perhaps the story of the day, moving from a gain of 2% to a fall of 2.43% in just a few hours of trade. It was a savage, China-like selloff, that resonated across the region.
The intraday chart doesn’t make for pleasant viewing, nor will it fill European traders with confidence as they head towards their offices this morning.
Markets in Hong Kong, Taiwan, South Korea and Singapore also staged dramatic turnarounds, moving from a sea of green to red in under two hours of trade.
Chinese stocks, like the broader region, also finished heavily in the red. After being up 0.5% at lunch, the benchmark Shanghai Composite closed down a whopping 3.22%, finishing the session on its absolute lows.
It was also the lowest closing level seen since December 9, 2013.
The falls on the Composite were replicated in other markets on the mainland with losses of between 2.30% to 4.10% recorded for the session.
The losses in China came despite a sizeable liquidity injection from the PBOC. Through 7 and 28-day repos, the bank injected 400 billion yuan into the nation’s financial system, the largest seen in three years.
Amidst signs of continued capital outflows, authorities are clearly looking to keep the financial system flush with liquidity in the lead up to Lunar New Year celebration.
Like stocks, commodities and higher-yielding currencies also gave back their early session gains, with most closing the session flat to lower.
Reflective of the sharp risk reversal, safe haven plays such as the Japanese yen and gold – down earlier in the day – finished higher.
While it would be easy to pin the dramatic turnaround in risk assets on the performance of Chinese stocks, or a slight weakening in the offshore traded yuan, it was likely more than that.
It started from seemingly nothing, when Chinese stocks were closed.
Perhaps that’s the most concerning thing – there was no one factor that investors could point to explain the rout.
It will be more than interesting to see how European markets perform after an equally ugly performance on Wednesday.
Here’s the final Asia market scoreboard as at 6pm AEDT.
- ASX 200 4864.00 , 22.48 , 0.46%
- Nikkei 225 16017.26 , -398.93 , -2.43%
- Shanghai Composite 2880.80 , -95.89 , -3.22%
- Hang Seng 18615.87 , -270.43 , -1.43%
- KOSPI 1840.53 , -4.92 , -0.27%
- Straits Times 2534.56 , -25.21 , -0.98%
- S&P 500 Futures 1846.00 , -9.00 , -0.49%
- USD/JPY 116.68 , -0.23 , -0.20%
- USD/CNH 6.6094 , 0.0082 , 0.12%
- AUD/USD 0.6893 , -0.0013 , -0.19%
- NZD/USD 0.6435 , 0.0006 , 0.09%
- AUD/JPY 80.43 , -0.31 , -0.38%
- EUR/USD 1.0899 , 0.0010 , 0.09%
- GBP/USD 1.4173 , -0.0017 , -0.12%
- USD INDEX 99.004 , -0.0870 , -0.09%
- Gold $1,102.86 , $2.24 , 0.20%
- Silver $14.15 , -$0.02 , -0.11%
- WTI Futures $28.13 , -$0.22 , -0.78%
- Copper Futures ¥34,840 , -¥270 -0.77%
- Iron Ore Futures ¥316.00 , -¥3.00 , -0.94%
10-Year Bond Yields
- Australia 2.686%
- New Zealand 3.260%
- Japan 0.223%
- Germany 0.496%
- UK 1.617%
- US 1.986%