‘Knife Is Still Falling’ for Asia Stocks Is Investors’ Verdict
‘Knife Still Falling’ in Asia Stocks as Traders Weigh Next Steps
(Bloomberg) -- The U.S. stock market just suffered its worst rout since 1987, then futures climbed so much that they hit exchange-enforced bands preventing further gains.
For Asia traders trying to make sense of the market on Tuesday, that translated into relatively muted moves: The MSCI Asia Pacific Index climbed 0.3% as of 4:44 p.m. in Hong Kong, after falling as much as 1.6% and gaining 1.3% -- much smaller swings than those of recent days. Shares in China, Japan and Singapore were among those that swung between gains and losses, while trading in the Philippines got halted in response to the coronavirus pandemic.
The virus that has already infected more than 174,000 people globally and killed 7,000 has sent shares plunging across markets as entire countries came to a halt, raising concerns that a recession is on the way despite government and central-bank action. Asia’s benchmark equity index has sunk 25% from a high in January and is now near its lowest level since July 2016.
While the worst of the damage might be behind, “it is still a de-risking story,” said John Woods, Credit Suisse Group AG’s chief investment officer for Asia Pacific. “It’s far too early to call the end of the crisis. The knife is still falling.”
The measures that central banks and governments across the world have pledged to counter the economic impact of the virus have done little to assuage traders’ worries. The Kospi index fell as much as 4.5% on Tuesday after an emergency rate cut by the Bank of Korea. The Topix index fluctuated before closing up 2.6% after the Bank of Japan raised its annual target for exchange-traded fund purchases and said it will take additional easing measures as needed.
Indonesia’s Jakarta Composite Index dropped the most in the region on Tuesday, triggering a trading halt. Malaysia’s benchmark gauge also fell after the nation announced a nationwide lockdown as it became the Southeast Asian country with the most virus infections. The Philippines has imposed a lockdown of the capital region.
Australia’s S&P/ASX 200 Index, on the other hand, jumped as much as 6%, the most since 1997, after a record 9.7% plunge on Monday.
Finding value
Virus-wrecked Asian stock markets have pushed stock valuations to levels not seen since 2011. But if the ongoing rout in financial markets is anything like 2008 or worse, there is more downside before a serious risk-reward emerges for bulls, according to some fund managers.
“We are in whipsaw markets,” said Alan Richardson, a fund manager at Samsung Asset Management. “They are likely to rally then decline again until the rate of infections slows in developed economies. Everything before the slowing in new infections is volatile and random noise.”
Cases in the U.S. have climbed to more than 4,300, and those in Italy, the most affected country in Europe, have reached almost 28,000.
While technical indicators show there may be a counter-trend bounce in the MSCI EM Asia Index “in the next few days,” Mark Galasiewski, chief Asian-Pacific analyst at Elliott Wave International in Atlanta, says “the ultimate end to the correction is still weeks away.” Some technical traders look at the Elliott Wave analysis of price patterns to predict market moves.
Lombard Odier’s Jean-Louis Nakamura, too, is of the view that the market isn’t ready for a solid bounce.
“The worst for markets may be behind us, at least in terms of extreme dislocations,” the firm’s chief investment officer of Asia Pacific said. “However, we do not think that we have yet reached the conditions for a sustainable rebound. The number of unknowns remain just too high.”
--With assistance from Matt Turner.
To contact the reporters on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Cecile Vannucci, Margo Towie
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