Headline indices of the Asia Pacific market hit with a double whammy on Thursday, June 20, 2013, with the FOMC saying that they are considering tapering their asset purchases if the economic recovery remains on course while Chinese HSBC PMI data showed a contraction in manufacturing.
Risk aversion selloff triggered across the world after confirmation that the US central bank will stop its $85-billion bond buying programme later this year. The US Federal Reserve Chairman Ben Bernanke announced overnight (Wednesday, June 19, 2013) that the US Central Bank plans to slowdown its asset purchasing scheme later this year with an eye to shutdown QE3 altogether by this time next year
The Fed said on Wednesday it would keep in place its $85 billion-a-month bond-buying program as unemployment remains high and growth in the world's top economy was being held back by government spending cuts.
With the Fed holding rates and policy as expected market attention turned to Mr. Bernanke. The US Federal Reserve Chairman Ben Bernanke said in a news conference that the US economy was recovering nicely and that the jobs market was on the mend and that if the economy continued to improve that the Fed would begin to taper its asset purchases of $85 billion-a-month bond-purchase program. The Fed also upgraded its assessment of the economic recovery, saying unemployment may fall to 6.5% by the end of 2014 one condition previously set to justify rolling back stimulus program.
The prospect of an eventual end to free money in the US has sparked a huge unwinding of carry trades with investors rushing to pull money out of emerging markets, which had been very popular due to their higher yields.
Meanwhile, losses ramped up further after Markit/HSBC data showed activity in the China's vast manufacturing sector weakened further in June to a 9-month low. The Chinese PMI (Purchasing Managers Index) fell to 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction. A sub-index measuring overall new orders dropped to 47.1 in June, the lowest reading in 10 months, suggesting demand is weakening both at home and abroad. Qu Hongbin, chief China economist at HSBC said "Manufacturing sectors are weighed down by deteriorating external demand, moderating domestic demand and rising destocking pressures".
In the Asia pacific region, the Tokyo market declined sharply, caught up in a global selloff after weak Chinese data and Fed hawkish comment. The Nikkei Stock Average declined 1.7%, to 13,014.58, while the Topix index of all first-section shares sank 1.3% to 1,091.81.
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China-related shares suffered the most in Tokyo exchange in reaction to poor Chinese manufacturing data. Preliminary June HSBC China manufacturing PMI declined to a nine-month low. Komatsu lost 3.8% at 2,319 yen while Hitachi Construction Machinery dropped 4.9% to 3,480 yen. Real estate developers slumped as long-term Japanese government bond yields ticked up, suggesting a rise in interest rates that will make their financing more expensive. Sumitomo Realty & Development fell 3.3% to 3,540 yen and Tokyo Tatemono lost 5.9% to 723 yen.
GS Yuasa gained 5.9% to 431 yen after a Nikkei report that it will form an alliance with German auto-parts giant Robert Bosch GmbH and Mitsubishi Corp. to develop a new type of battery that would double the range electric vehicles can travel on a single charge.
In Australia, Sydney share market also dropped in line with other regional bourses, wiping about A$30 billion off the local market's value, as investors sentiments spooked by weak Chinese factory data and the Fed's plans to wind back its stimulus. The benchmark S&P/ASX200 index slumped 2.1% to 4758.4, while the broader All Ordinaries lost 2% to 4743.9.
Australian miner stocks tumbled as prices for gold and other metals skidded lower after the Fed's announcement. Copper slid to its lowest in over six weeks, the third straight day of losses and gold fell to a one-month low. BHP Billiton erased 2.5% to A$32.15 and Rio Tinto 3.3% to A$52.60. Junior iron ore miner Fortescue Metals Group dropped 6.5% to A$3.14. Gold miner Newcrest Mining sank 3.6% to A$10.75.
While, Australian shares that heavily exposed to the US economy rose today after the Aussie dollar slump to its lowest level since September 2010. In the healthcare sector, there were strong support seen in CSL (CSL) and Cochlear (COH), which rose 0.9% and 1%. In IT sector, Computershare rose 2% to A$10.58.
In China, Chinese share market nosedived today due to steep selling across the board on mounting concerns about liquidity crunch in the domestic market. Meanwhile selling pressure compounded after data suggested that China's manufacturing activity contracted further in June to a nine-month low. The Shanghai Composite Index retreated 2.77% to 2,084.02 while the smaller Shenzhen Composite Index lost 3.4% to 942.06.The Chinese market has slumped more than 15% from this year's high on February 6 on concern the nation's economic slowdown is deepening.
Mainland's China stocks declined largely on rekindled liquidity crunch woes after China's interbank funding costs surged again today, with the two shortest-term rates hitting record highs, as the central bank again ignored market pressure to inject funds into the market, despite fresh evidence that the economy is slowing.
The People's Bank of China (PBOC) told the market that it would not conduct repo business in its regular open market operations on Thursday, frustrating widespread expectations that it would use reverse repos to inject cash to ease an acute market squeeze over the last two weeks. By not easing liquidity conditions, it could exacerbate an economic slowdown that already appears well under way. China's factory activity weakened to a nine-month low in June as demand faltered, a preliminary survey showed today.
The benchmark weighted-average seven-day bond repurchase rate jumped a whopping 450 basis points to a record high of 13.50 per cent, while the overnight repo rate surged 370.5 bps to 14.005 per cent. The fortnight repo rate climbed 591 bps to 13.75% and 1-month repo rate rose 588.5 bps to 14%.
In Hong Kong, city shares declined, dragging the benchmark Hang Seng Index down 604.02 points from prior day to finish at 20382.87. All but one blue chip fell. China Merchants edged up 0.4% to HK$23.7, becoming the only blue-chip that rose. For the broader market, over 1,000 stocks declined, and about 180 stocks that gained. Market heavyweights were lower. China Mobile fell 1.4% to a 52-week low of HK$75.05, while HSBC slipped 2.7% to HK$81.5. Chinese banks fell across the board. Minsheng Bank plunged 6.3% to HK$8.02. CCB slid 5.2% to HK$5.15. ICBC dipped 4% to HK$4.57. Both ABC and BOC sank 3% to HK$3.09 and HK$3.08.
Hong Kong's overall consumer prices rose 3.9% in May over the same month a year earlier, slightly smaller than the corresponding increase of 4% in April, data from the Census and Statistics Department showed. After netting out the effects of all Government's one-off relief measures, the year-on-year rate of increase in the Composite CPI (i.e. the underlying inflation rate) in May 2013 was 3.8%, also slightly smaller than the 3.9% rise in April, mainly due to the smaller increases in the prices of fresh vegetables.
In separate report, the Census and Statistics Department (C&SD) said on Thursday that the volume of Hong Kong's re-exports of goods increased by 8.9% on year in April 2013, whereas that of domestic exports decreased by 7.1%.
In India, Indian stock declined sharply today due to heavy capital outflows as the rupee hit a life-time low of 60 against the dollar amid a weak trend in the global market. The BSE benchmark S&P Sensex dropped 2.8% or 539 points to 18706.70. All the sectoral indices were ended in the red, lead by realty, metal and banking heavyweights. Trading sentiment turned extremely bearish after the rupee slumped to life-time low of 60 against the dollar and a weak trend in the global market on concerns that inflows to emerging markets may hit after US Fed taper off its stimulus programme later this year. Foreign institutional investors sold Indian shares worth Rs 544.97 crore yesterday, as per provisional data from the stock exchanges.
Elsewhere in the region, South Korea's Kospi declined 2%. Taiwan's Taiex shed 1.4%. New Zealand's NZX50 erased 1.1%. Indonesia's JKSE tanked 3.7%. Singapore's STI dropped 2.5%. Malaysia's KLSE was down 0.6%
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