Via Financial Times

Asia-Pacific stocks sold off for a fifth day on coronavirus fears as shares in Tokyo followed Wall Street into correction territory, and investors ramped up bets the US central bank would cut interest rates as the crisis deepens.

Japan’s Topix stock index plunged 4.1 per cent on Friday, with the benchmark now down more than 10 per cent from its most recent high in early February.

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.

China’s CSI 300 index of Shanghai- and Shenzhen-listed equities dropped 3.4 per cent, while Hong Kong’s Hang Seng fell 2.7 per cent. In Sydney the S&P/ASX 200 dropped 3 per cent, while South Korea’s Kospi share index was 2.9 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.

90%


The chance of a 25 basis point 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 $50.88 a barrel. West Texas Intermediate, the US marker, dropped 2.6 per cent to $45.88, its lowest level in more than a year.

S&P 500 futures suggested a drop of 0.7 per cent when Wall Street opens later on Friday, while FTSE 100 contracts pointed to a 2.8 per cent fall when trading in London begins.

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“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.

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 an almost 90 per cent chance of a 25 basis 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 a basis point to 1.254 per cent, just shy of a record low touched on Thursday. 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.

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“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.

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