Global stocks drop to unexpected lows

ASIA, EMERGING MARKETS FEEL THE PAIN AS HIGHER US INTEREST RATES FORCE INVESTORS’ HANDS

European stocks slumped to a 21-month low yesterday after Wall Street’s worst losses in eight months triggered a surge of global selling that also hit Asia and emerging markets.

Losses in London, Paris and Milan were at nearly 2 per cent ahead of what looked set to be another early dive from Wall Street, although it wasn’t quite as dramatic as the overnight session in Asia.

MSCI’s broadest index of Asian shares not including Japan ended down 3.6 per cent, having struck its lowest level since March 2017. China’s main indexes had slumped over 5 per cent. It meant MSCI’s 24-country emerging market index was having its worst day since early 2016, after Wall Street’s swoon had given the 47-country world index equivalent its worst day since February.

“Equity markets are locked in a sharp sell-off, with concern around how far yields will rise, warnings from the IMF about financial stability risks and continued trade tension all driving uncertainty,” summed up ANZ analysts. The sell-off, which came as the head of the International Monetary Fund (IMF) Christine Lagarde, said stock market valuations have been “extremely high”, erased hundreds of billions of dollars of global wealth. Japan’s Nikkei ended down 3.9 per cent, its steepest daily drop since March. The broader Topix lost around $207 billion (Dh760 billion) in market value, falling 3.5 per cent.

Shanghai’s drop was its most severe since February 2016 and left it at its lowest level since late 2014. Shares in Taiwan were even harder hit, losing 6.3 per cent. Seoul’s Kospi index dropped 3.8 per cent.

“What happened was that we were a maximum elevation of risk appetite and maximum valuation of (US) large caps and tech, so when you have that situation you are always vulnerable,” said UBP macro and FX strategist Koon Chow.

What’s next for US rates?

Sinking global shares had raised the stakes for US inflation figures which ended up coming in relatively tame.

High inflation would only stoke speculation of aggressive Federal Reserve rate hikes, which has spooked markets. On Wall Street, the S&P500’s sharpest one-day fall since February on October 9 had wiped out around $850 billion as the S&P toppled over 3 per cent.

Hawkish commentary from Fed policymakers triggered the sell- off in Treasuries last week and sent long-term yields to their highest in seven years.