Selling Frenzy Grips Markets as Traders Tally Losses From Rout

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Finding the Silver Lining in This Stock Selloff

On Mirabaud Asia Ltd.’s Hong Kong trading floor, stockbrokers sat in quiet disbelief. At Vunani Private Clients in Johannesburg, calls from worried investors came in thick and fast. In Mena Corp Financial Services LLC’s Abu Dhabi office, traders canceled vacation plans.

“The situation is terrible and there’s a lot to be concerned about,” said Nabil Rantisi, managing director of Abu Dhabi-based Menacorp, the biggest brokerage by value traded in the United Arab Emirates. “It feels like it’s judgment day. I’ve spent my entire holiday working.”

Investors in riskier assets rushed for the exits on Monday, sparking an 8.5 percent selloff in the Shanghai Composite Index and sending European shares to their biggest retreat since 2011. Commodities prices sank to a 16-year low, while the currencies of Russia and South Africa weakened at least 2 percent against the dollar.

After more than six years of largely uninterrupted gains in global equity markets, China’s economic slowdown and the prospect of higher U.S. interest rates are prompting investors to reassess their holdings. Volume on stock exchanges from Hong Kong to Frankfurt surged, with brokers citing margin calls as one reason for the extent of the losses.

“This move down is likely to cause some nasty margin calls,” said Andrew Clarke, director of trading at Mirabaud Asia. “Brokers are in damage limitation mode.”

Investor Gloom

The declines on Monday were most extreme in China, where the benchmark Shanghai Composite erased its gain for the year despite a government announcement that pension funds can buy shares for the first time. The rule change was the latest in a series of efforts to prop up equity prices amid a $4 trillion rout.

Chen Gaomin, 26, an individual investor who works at Baidu Inc. in Beijing, said she’d be in favor of government intervention if it helps to recoup her losses. All her colleagues at the Chinese search-engine operator are losing money in the equity market.

“There is a super gloomy atmosphere talking about stocks,” she said. “I just want the performance to go back to normal soon, so I can get my money back.”

South Africa’s benchmark equity index sank 2.9 percent to the lowest Dec. 17, paring an earlier decrease of as much as 5.1 percent, as the rand plunged to a record low.

“You’re seeing a lot of capitulation, people selling for the sake of selling and wanting to get out of the market,” said Michele Santangelo, a money manager at Vunani Private Clients.

Frayed Nerves

In Singapore, where the local currency touched a five-year low on Monday, Barclays Plc economist Wai Ho Leong said client requests were flooding in three times faster than normal. Investors are trying to gauge how vulnerable Asian economies are to capital outflows, he said.

Malaysia’s ringgit weakened 1.8 percent, while Indonesia’s rupiah slipped 0.8 percent as a gauge of emerging-market currencies slid to the lowest level on record.

“With each selloff, the nerves are becoming more frayed,” he said.

Not everyone is freaking out. Hertta Alava, who helps oversee the equivalent of about $395 million as the head of emerging markets at FIM Asset Management Ltd. in Helsinki, said she’s seen this kind of turbulence before having begun her career in 1998.

“I also have two kids at home and they don’t really care about stock markets,” she said.

Raimund Saxinger of Frankfurt-Trust Investment GmbH was confident markets would find a bottom a soon.

“I am not too concerned,” Saxinger, who helps oversee $18 billion as a fund manager at Frankfurt-Trust. “A lot of the bad news is already priced in.”

Volatility Opportunity

Some traders saw opportunities. John Zhu, a portfolio manager who helps oversee about A$40 million ($28.9 million) at Triple 3 Partners in Sydney, has been betting on higher equity volatility through options on the so-called VIX index in the U.S.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, more than doubled last week amid concern that an interest-rate increase as soon as this year will erode demand for shares. The Standard & Poor’s 500 Index headed for its first correction in nearly four years. The gauge’s two-day bludgeoning reached 7.3 percent at 3 p.m. in New York as the gauge succumbed in afternoon trading to the global selloff

“If this persists, it’ll be a very good time for us to make a killing,” Zhu said. “It won’t be a new bear market, but it depends on how the Fed reacts.”

Supreeth Shankarghal, who helps oversee $400 million as a director at hedge fund QF Assets Ltd. in Bengaluru, is buying Indian shares and futures in a bet that prices will rebound.

Just Buy

“There is no time to waste, no painstaking Powerpoint presentations to analyze and justify each strategy,” Shankarghal said. “The only strategy is to just buy. Almost everything is looking attractive.”

As Japan’s Topix index sank more than 10 percent from its Aug. 10 high, Credit Suisse Group AG’s Basil Dan, the firm’s head of equity sales in Tokyo, saw rare sell orders from pension funds in the U.S. and Europe. Even defensive stocks, those that tend to hold up best during economic turmoil, were coming under pressure, he said.

“Relatively speaking, Japan is looking attractive to other countries,” Dan said. “But as globally we’re in a risk-off mode, we might not see any money flow in for a while.”