Volatility Returns to Asian Equities as Japan, China Shares Fall

  • Yen strength drags on Topix index in afternoon trading
  • Shanghai Composite declines as central bank weakens yuan

Equity market volatility returned to the Asia Pacific region after China’s central bank weakened the yuan by the most in six weeks and the yen strengthened, dragging Japanese shares lower.

The MSCI Asia Pacific Index slipped 0.1 percent as of 4:15 p.m. in Hong Kong as material and energy shares advanced while consumer staples fell. Japan’s Topix index erased a gain of as much as 1.2 percent to close 0.7 percent lower. The Shanghai Composite declined 0.8 percent.

Volatility that has plagued global shares in 2016 resumed as concerns over moves in crude and the yen resurfaced. The MSCI Asia Pacific Index has lost 8.7 percent this year amid a combination of tumbling oil prices, concern about the slowdown in Asia’s largest economy and the pace of U.S. interest rate increases.

“There is a view among foreign investors, economists and analysts that China is now more of a worry,” said Geoff Lewis, Hong Kong-based senior strategist for Asia at Manulife Asset Management, which manages about $301 billion. “A big-step devaluation would reduce disposable income, it would hurt income levels and consumption. So it’s not in their interest to do that.”

30-day historical volatility on MSCI Asia Pacific Index near highest since 2011

Turnover on Japan’s Topix was 18 percent lower than the 30-day average as the yen resumed strengthening and investors weighed the Bank of Japan’s ability to further weaken its currency after it added a negative interest rate policy to its monetary arsenal.

“The Japanese equity story has been unnecessarily destabilized by the incremental move into negative rates,” Christopher Wood, a strategist at CLSA Ltd., told Bloomberg TV in Tokyo.

Hong Kong’s Hang Seng retreated 0.3 percent, while the Hang Seng China Enterprises Index of mainland firms listed in the city lost 0.6 percent. Taiwan’s Taiex Index added 0.1 percent. The Shanghai Composite extended its decline for the year to 18 percent, amid concern the economic slowdown isn’t abating and a weaker yuan will exacerbate capital outflows.

HSBC Holdings Plc cut its year-end forecast for the Shanghai index by 18 percent to 3,200 amid concern the slowing economy will hurt earnings. Market volatility will remain “elevated” due to the lack of policy-making coherence, Steven Sun, an equity strategist at HSBC, wrote in a report dated Tuesday.

China is preparing to host finance chiefs and central bankers from the Group of 20 nations later this week, while the National People’s Congress convenes its annual meeting early next month in Beijing.

South Korea’s Kospi index slipped 0.1 percent and Australia’s S&P/ASX 200 Index declined 0.4 percent. Singapore’s Straits Times Index rose 0.5 percent as a report showed consumer prices fell for a 15th straight month, the longest streak of declines since 1977, prompting authorities to cut this year’s inflation forecast amid a global oil-price slump. New Zealand’s S&P/NZX 50 Index increased 0.6 percent.

U.S. crude pared gains to trade at $32.58 a barrel after surging on Monday. The International Energy Agency said a global surplus will persist into next year and limit any chance of a short-term price rebound.

BHP Climbs

BHP Billiton Ltd. rose 2.6 percent in Sydney even after making a larger-then-expected cut to its dividend, lowering the payout for the first time in 15 years, as the world’s biggest mining company seeks to protect its balance sheet and credit ratings amid a price collapse that saw first-half profits tumble 92 percent.

QBE Insurance Group Ltd. surged 8.5 percent in Sydney, the most since January 2008, after raising its dividend.

Sharp Corp. jumped 3.5 percent in Tokyo after Jiji Press and the Mainichi newspaper separately reported the firm is likely to choose Foxconn Technology Group’s bid for the Japanese company’s operations. The maker of smartphone displays and refrigerators is expected to vote on Feb. 25, according to Jiji and Nikkei. Sharp said it hasn’t made a decision.

Futures on the S&P 500 slipped 0.5 percent. The underlying equity measure closed at an almost seven-week high on Monday.

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