Big Money Trying to Flee Small Markets Crushes Asian Stocks

(Bloomberg) -- The global capitulation in equities of Asia’s emerging markets is going from bad to worse.

Circuit breakers triggered trading halts from Bangkok to Manila and Jakarta for a second day as Asia’s developing markets struggled to cope with an exodus of foreign capital. Stocks tumbled on Friday following the worst Wall Street session since 1987, with the MSCI Asean Index sinking as much as 8.2%, the biggest intraday loss since it inception in the mid-1990s.

For Rainer Michael Preiss, equity chief investment officer at the Global CIO Office in Singapore, it’s an unpleasant reminder of how fast stocks can fall when everyone rushes to the exits at once.

“People have come to a realization that they were on the wrong side of the market,” said Preiss. “People should have listened to the medical experts rather than the economists, and realized that they were holding the wrong assumptions about earnings.”

With withdrawals surpassing $2.2 billion, Thai stocks saw the biggest foreign outflows among Southeast Asian economies this quarter and the worst since the three months ended December 2018. In total, foreign investors have pulled more than $4 billion from the region’s equities.

Big Money Trying to Flee Small Markets Crushes Asian Stocks

The sell-offs came as the rapid spread of the coronavirus roils global markets even as central banks around the world have cut rates, while governments have enacted fiscal measures to sustain growth. Southeast Asian nations have pledged more than $22 billion collectively in stimulus, lowered benchmark rates and made the stock market structures friendlier for investors in a bid to counter the economic damage from the spreading pandemic.

“We want to see more concrete, coordinated response from global leaders to combat the virus,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “There are doubts that Trump has a good handle on this. We need to see real, possibly larger, numbers of infected populations and transparency.”

Southeast Asian equities are now trading near their lowest in 14 years relative to global developed peers. The MSCI Asean Index’s valuation of 12 times estimated earnings for the next year is below 2-standard deviations of its 10-year average, data compiled by Bloomberg show.

“It’s capitulation, investor aversion and selling at any price,” said Alan Richardson, a fund manager at Samsung Asset Management. “Capitulation is driven by fear the global economy will stop in order to end the Covid-19 pandemic.”

Asian investors were previously focused on the recovery in China, but the new fear is demand destruction caused by developed economies slowing to stop the further spread of the Covid-19 pandemic, Richardson said. “So back to work in China isn’t meaningful if the end market is not functioning,” he said.

The stock-market plunge worsened Thursday after U.S. President Donald Trump significantly restricted travel from Europe and stopped short of offering a detailed economic rescue package. The Southeast Asian economies’ heavy reliance on tourism and open capital accounts doesnt’t help when everyone wants out.

Big Money Trying to Flee Small Markets Crushes Asian Stocks

Currencies in the region have also been hit hard. The Indonesian rupiah has led a decline this week, weakening almost 4% against the U.S. dollar, while the Malaysian ringgit has lost nearly 3%.

“The EU travel ban from Trump could have tipped” markets over, said Preiss of the Global CIO Office.

©2020 Bloomberg L.P.

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