Asia-Pacific stocks sold off for a seventh day on coronavirus fears as shares in Tokyo and Sydney followed Wall Street into correction territory, and investors ramped up bets the US central bank would cut interest rates as the crisis deepens.
By midday the MSCI Asia Pacific index was down about 7 per cent for the week, putting the region’s shares on track for their worst weekly performance since September 2011, the height of the eurozone debt crisis.
Japan’s Topix stock index plunged 4.2 per cent on Friday while Australia’s S&P/ASX 200 dropped 3.3 per cent, bringing both benchmarks down more than 10 per cent from their most recent highs in early February.
FTSE 100 futures pointed to a 3.9 per cent fall when trading in London begins, while S&P 500 futures suggested a drop of 1.7 per cent when Wall Street opens later on Friday.
The latest brutal sell-off in the region came after the S&P 500 closed more than 4 per cent lower overnight, extending the US stocks slump to a sixth day.
Global markets this week began waking up to the threat of the virus as it spread beyond Asia, where stocks had already dropped sharply in China and other countries.
Now fears of economic disruption and a steady stream of news on outbreaks across the globe are forcing traders to grapple with the prospect of an imminent pandemic, driving Asian equities lower still as outbreaks in Japan and South Korea pile more downward pressure on those countries’ stock markets.
“The market is rapidly pricing in a very dire scenario comparable to what we’ve seen in China,” said Tai Hui, head Asia market strategist for JPMorgan Asset Management.
China’s CSI 300 index of Shanghai- and Shenzhen-listed equities dropped 3 per cent, while Hong Kong’s Hang Seng fell 2.8 per cent and South Korea’s Kospi share index was 3.4 per cent lower.
Traders are fretting that the deadly coronavirus, which has spread from China to countries including the US and in Europe, the Middle East and elsewhere in Asia, could slam the global economy this year.
The chance of a reduction in interest rates, as indicated by Fed funds futures
Oil prices fell further on Friday with Brent crude, the international benchmark, dropping 2.5 per cent to $50.86 a barrel. West Texas Intermediate, the US marker, dropped 3 per cent to $45.69, its lowest level in more than a year.
Traders are now almost certain that the Federal Reserve will be forced to cut interest rates in March to head off any economic slowdown owing to the spread of the virus.
Fed funds futures on Friday indicated a more than 95 per cent chance of a 0.25 percentage point reduction in interest rates, up from 20 per cent at the start of the week.
Investors continued to bid up haven assets on Friday. Yields on 10-year US Treasuries fell 0.03 percentage points to 1.2359 per cent, a new record low. Bond yields fall as prices rise.
“People are running scared,” said Andrew Sullivan, director at Hong Kong brokerage Pearl Bridge Partners.
Traders in Asia were keen to sell on concerns that the weekend would bring more bad news on the outbreak, he said, which analysts think could hit global economic growth this year.
Health authorities in China reported 44 new deaths from coronavirus to the end of Thursday, up from 29 a day earlier, taking the total fatalities in the mainland to 2,788. There were 327 new infections recorded, against 433 on the previous day, bringing the total to 78,824.
JPMorgan’s Mr Hui said that markets in Japan and Korea were slammed by concerns over domestic outbreaks, but he added that Asian equities were also better poised for a recovery — whenever that arrives — than other markets.
“The room for policy stimulus is much more plentiful in this part of the world . . . both in terms of rate cuts by central banks and fiscal stimulus,” he said.