Asian Stocks Drop as Oil Rally Fizzles, China Shares Resume Rout

  • Benchmark regional index has worse two-day drop since August
  • China cash injection fails to ease concern over economy

The selloff in Asian stocks resumed as a rally in crude oil fizzled and equities in China and Japan reversed morning gains to extend a three-year low for the region’s benchmark gauge.

The MSCI Asia Pacific Index declined 1.7 percent to 114.60 as of 4:01 p.m. in Hong Kong, wiping out an earlier gain of as much as 1 percent. The gauge has tumbled 13 percent in January, heading for its worst month since the depths of the financial crisis in 2008. Global equities have fallen more than 19 percent from a record high in May, with Japanese shares plunging into a bear market as tumbling oil prices fed concerns over the global economic outlook.

“The ground right now is so unstable, and there’s so much anxiety,” said Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., which manages $453 billion. “We saw a rally, but I wouldn’t say that we’re in a full rebound yet. People are just bottom-fishing.”

Asian shares started the day with a rebound from Wednesday’s 2.7 percent selloff, as March futures on West Texas Intermediate crude climbed as much as 1.8 percent. Energy shares soared the most among 10 industry groups in the MSCI Asia Pacific gauge, rising as much as 2.6 percent before erasing gains.

Stocks turned around with oil at midday, with U.S. crude resuming the previous day’s slide. The February futures contract expired Wednesday at the lowest level since May 2003 as energy producers turned gloomier on the prospect of a recovery this year.

Volatility Surges

The MSCI Asia Pacific gauge has lost 4.5 percent since Tuesday, for the steepest two-day decline since Aug. 25. Daily swings have been prevalent across financial markets in 2016, amid turmoil in Chinese markets and the almost uninterrupted selloff in crude oil. Gauges of volatility for Japanese and Hong Kong equities climbed Thursday to the highest in more than four months.

The Shanghai Composite Index fell 3.2 percent as the Chinese central bank’s biggest cash injection in the financial system in three years failed to ease concern that the economic slowdown will deepen. The Hang Seng China Enterprises Index slipped 2.2 percent in Hong Kong, while the benchmark Hang Seng Index declined 1.8 percent.

Policy makers are trying to hold borrowing costs down to support China’s economy without spurring an exodus of funds that drove the yuan to a five-year low this month. The People’s Bank of China said Thursday it conducted 110 billion yuan ($16.7 billion) of seven-day reverse-repurchase agreements and 290 billion yuan of 28-day contracts. A gauge of interbank funding availability jumped the most in 13 months on Wednesday, ahead of next month’s Chinese New Year holiday.

Oversold Signal

Investors are looking for evidence stocks have hit a bottom, as some market indicators signal the equities selloff has gone too far. The 14-day relative strength index for Japan’s Topix fell to 21.29 on Thursday, remaining below the level of 30 which some traders say indicates that shares will rise.

“A sensible strategy is to buy through these periods of volatility in a number of stages since you can’t pick the absolute bottom,” Martin Lakos, Sydney-based strategist at Macquarie Private Wealth, said by phone. “There’s some very good value in the market particularly if you’re looking at earnings momentum. Ultimately sense will prevail and investors will focus on fundamentals. We’re not seeing the economies in China, U.S or Europe falling off the cliff.”

Japan’s Topixdropped 2.8 percent at the close, after rising as much as 1.6 percent. The Topix and the Nikkei 225 Stock Average have fallen more than 23 percent from their 2015 peaks through Thursday. The Nikkei 225 last entered a bear market in June 2013, after plunging 20 percent in less than a month. The gauge soon rebounded, rallying 31 percent from its low on June 13, 2013, through the end of that year.

Toyota Motor Corp. slipped 2.8 percent, pacing losses among Japanese exporters as the yen strengthened for a second day. Yaskawa Electric Corp. dropped 8 percent after cutting its profit forecasts. McDonald’s Holdings Co. Japan Ltd. sank 9.2 percent after the Nikkei newspaper reported its parent probably got low offers for its stake. China Resources Beer (Holdings) Co. tumbled 14 percent in Hong Kong after Macquarie Bank Ltd. downgraded its rating on the Chinese brewery partner of SABMiller Plc.

New Zealand’s benchmark gauge and Taiwan’s Taiex index both slipped 0.5 percent. South Korea’s Kospi index fell 0.3 percent. Singapore’s Straits Times Index declined 0.8 percent. Australia’s S&P/ASX 200 Index added 0.5 percent, after closing Wednesday near a 20 percent drop from last year’s high that would have met the definition of a bear market.

E-mini futures on the Standard & Poor’s 500 Index fell 0.2 percent, also giving up earlier gains. The U.S. equity benchmark index closed 1.2 percent lower at a 21-month low on Wednesday. A late-day rally paced by health-care and small-cap shares helped trim declines of as much as 3.7 percent.

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