Asian Stocks Decline as Weak Yuan Fix Weighs on Risk Appetite

  • North Korea nuclear test adds to geopolitical concerns
  • Sharp leads Apple suppliers lower on report of production cut

Asian stocks fell for a third day as concern about the strength of China’s economy deepened a rout that’s wiped about $2 trillion from the value of global equities this year.

The MSCI Asia Pacific Index lost 0.9 percent to 127.23 as of 4:04 p.m. in Hong Kong. Japanese exporters slumped after China set a weaker fix for the yuan, while Apple Inc. suppliers tumbled on a report it may cut production. North Korea conducted a nuclear test Wednesday, adding to geopolitical risk. Stocks in Shanghai surged the most in three weeks amid government efforts to shore up the market.

“China is still a very underestimated risk,” Rainer Michael Preiss, a strategist at Taurus Wealth Advisors Ltd., told Bloomberg TV in Singapore. “The most elegant way out of a very complicated problem is to further devalue the currency and that would have a very negative impact on Asia in particular but also on other emerging markets. That’s not fully priced in.”

Asian equities dropped with U.S. futures after China’s central bank set the currency’s reference rate at an unexpectedly weak level. The gap between China’s currency rate inside the country and that for the yuan traded offshore widened to a record, underscoring speculation the government faces pressure to devalue its currency to aid the economy.

North Korea added to geopolitical concerns after tension spiked earlier this week between Saudi Arabia and Iran. North Korea detonated a hydrogen device at an underground test site in the far northeast, the regime’s official news agency said. The test is the second since Kim Jong Un became supreme leader, and is a setback for U.S. and Chinese efforts to restart disarmament talks. South Korea’s Kospi index declined 0.3 percent, paring losses of as much as 1 percent.

The MSCI Asia Pacific Index has lost 3.6 percent since the beginning of the year, for the biggest three-day decline since September.

“There’s a healthy dose of caution in our camp,” said Mark Lister, head of private wealth research at Craigs Investment Partners in Wellington, which manages about $7.2 billion, adding that he remains overweight equities. “There’s still quite a long list of things to worry about and this volatility is going to be with us for some time. We’re still cautious on China and think it gets worse before it gets better. It doesn’t help sentiment when you’re seeing such big moves.”

The Hang Seng Index declined 1.1 percent on Wednesday, extending declines this week to 4.3 percent, and the Hang Seng China Enterprises Index fell 0.9 percent, bringing its losses in 2016 to 5.4 percent. The Shanghai Composite Index rallied 2.3 percent, following a two-day 7.1 percent slide featuring a plunge on Monday that wiped out $590 billion of market value and triggered a trading halt.

Japan’s Topix gauge retreated 1.1 percent after earlier jumping as much as 0.7 percent, as the weaker yuan undermined the competitiveness of the country’s exporters. The index has dropped 3.8 percent during the first week of the year.

Asian suppliers of Apple Inc. phones sank after Japan’s Nikkei Asian Review reported the world’s biggest company would reduce the output of its latest iPhones by about 30 percent in the first quarter of 2016. Sharp Corp. slumped 3.3 percent, Japan Display Inc. lost 3.5 percent and Alps Electric Co. sank 3.2 percent.

Australia’s S&P/ASX 200 Index dropped 1.2 percent and New Zealand’s S&P/NZX 50 Index slid 0.3 percent. Singapore’s Straits Times Index fell 1 percent and Taiwan’s Taiex Index retreated 1.1 percent.

Futures on the S&P 500 tumbled 0.9 percent Wednesday. The U.S. equities gauge rose 0.2 percent Tuesday after slipping 1.5 percent in the previous session.

Before it's here, it's on the Bloomberg Terminal.