BEIJING — A sell-off on Wall Street infected markets in Asia and Europe on Thursday as investors from China to France reacted to fears that rising U.S. interest rates will lead to slower growth in the world’s largest economy.
China was among the hardest hit, with indexes in Shanghai and Hong Kong falling 5.2 and 3.5 percent, respectively. More than a quarter of stocks on the Shanghai exchange fell by their 10 percent daily limit, according to Bloomberg, as the Shanghai Composite Index hit lows not seen since 2014.
The tech-heavy TWSE index in Taiwan plummeted 6.3 percent, while Japan’s Nikkei slid nearly 4 percent and the South Korean KOSPI index dropped 4.4 percent as foreign investors pulled out.
“If this continues for three consecutive days, it will be more than just a market correction — it’s more likely to be a really big sell-off,” said Jackit Wong, a Hong Kong-based vice president of global market research at MUFG Bank. “We’re hoping for a quiet day tomorrow.”
The Stoxx Europe 600 also slumped by 1.7 percent in early trade, weighed down by a drop in tech companies, with London’s FTSE 100 down by a similar percentage.
After U.S. tech shares plummeted overnight, Chinese Internet giant Tencent, Asia’s largest company by market capitalization and a major factor in the Hong Kong Hang Seng Index, was battered again as it fell 6.8 percent. Tencent has retreated 43 percent from its high this year and fallen out of the top 10 global companies by market value.
Li Daxiao, chief economist with Yingda Securities in Shenzhen, said both Shanghai and Shenzhen shares dropped more than expected on Thursday after the shock wave from the U.S. rout hit Asia. “Fear is being transmitted from market to market,” he said.
The Dow Jones industrial average dropped more than 800 points in trading on Wednesday, one of the worst sell-offs since February as traders rushed to sell stocks that have been driving the U.S. economy. Netflix was down more than 8 percent, Amazon was off 6 percent, and Apple and Google were both down more than 4.5 percent.
This reflected investor concern that the Federal Reserve will continue to raise interest rates and that this will slow economic growth and make borrowing more expensive for the U.S. government, as well as businesses and consumers.
“The U.S. market sell-off last night spooked sentiment and rekindled memories of similar trading sessions at the beginning of this year,” Medha Samant, investment director for Asian equities at Fidelity International, wrote in a note on Thursday morning, according to the Financial Times. “[It is] likely that this negative sentiment could roll over to the Asian markets in the short term,” she wrote.
President Trump on Wednesday strongly criticized the Fed for tightening rates, again signaling that he wanted interest rates to remain low.
“The Fed is making a mistake. They’re so tight. I think the Fed has gone crazy,” he told reporters while traveling in Pennsylvania Wednesday. “It’s a correction that we’ve been waiting for, for a long time. But I really disagree with what the Fed is doing, okay?”
Jitters were already running high, thanks to the trade war between China and the United States, which is showing no signs of being resolved any time soon.
Treasury Secretary Steven Mnuchin met with Chinese central banker Yi Gang at a World Bank conference in Indonesia on Thursday, a day after he warned China against “competitive devaluation” of its currency against the U.S. dollar as the trade war escalates.
The meeting came as Beijing — and investors worldwide — are waiting to see whether the Treasury Department labels China a currency manipulator next week in a report that could potentially set off a new round of recriminations between the two economic giants.
China’s renminbi stabilized around 6.93 to the dollar as of Thursday after falling sharply earlier in the week.
Yi did not tell reporters how the meeting with Mnuchin went on Thursday, but told the Chinese financial magazine Caixin that China was on course to hit its GDP growth targets despite concerns about the trade war and debt levels.
The renminbi had fallen “significantly” during the year and the Treasury Department is monitoring this “very carefully” to make sure China wasn’t manipulating its currency to gain an advantage in the trade war, Mnuchin told the Financial Times in an interview.
He said he wanted to discuss the currency with Beijing as part of the trade talks. “As we look at trade issues there is no question that we want to make sure China is not doing competitive devaluations,” he told the business newspaper.
Separately, the Treasury Department issued new rules on foreign investments into American companies, strengthening its power to block them on national security grounds. China has been the main target for these rules.
This ongoing friction is likely to suppress markets for some time, analysts said.
“As uncertainty continues to prevail in financial markets across the world, many investors are staying on the sidelines until more clarity emerges in U.S. Treasury and Chinese markets,” said Yasuo Sakuma, chief investment officer at Libra Investments, according to Reuters.
Shih reported from Hong Kong. Luna Lin contributed to this report from Beijing.
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1 September 2018
1 September 2018