Most Asian markets had a mixed day on Friday with most markets down, bar India. Overall, stocks experiencing the worst month since the onset of the Covid-19 pandemic, while jitters in currency and bond markets persisted.
Japanese stocks fell sharply, posting their biggest monthly drop since the pandemic and tracking Wall Street losses, while Chinese stocks edged down, and South Korean shares closed at their lowest in more than two years.
Australian shares also fell also again, but India was the standout, with shares rising on Friday to record their best quarter in a year.
The Nikkei share average closed down 1.83% at 25,937.21, its lowest close since July 1. The index shed 7.67% in September, its biggest monthly decline since March 2020. The broader Topix fell 1.76% to also record its worst month since March 2020.
All three major US stock indexes fell overnight on heightened fears of a recession and a report that Apple has cancelled a planned boost in iPhone 14 production.
“I think the falls in US stocks were an overreaction,” said Eiji Kinouchi, chief technical analyst, Daiwa Securities, adding the same could be true of Japan, citing a gap between supply and demand at the end of the month.
Every sector on the Nikkei fell except real estate, which gained 0.54%. Of the index’s 225 constituents, 186 declined, 35 advanced, and four traded flat.
A Bad Quarter for China Stocks
China stocks edged lower on Friday ahead of a week-long holiday, tracking overnight Wall Street losses on inflation worries and recession risks, while a subdued factory activity survey also weighed on sentiment.
The blue-chip CSI 300 Index and the Shanghai Composite Index both closed down 0.6%. The Hang Seng Index edged up 0.3%, while the Hang Seng China Enterprises Index ended almost flat.
For the quarter, the CSI 300 Index slumped 15.2% to post its biggest quarterly loss since a stock market meltdown in 2015. The HSI saw its worst quarter since 2011, with a 21.2% slump.
China’s factory activity eked out growth in September, but a slowdown in service sector growth and a downbeat private manufacturing survey pointed to further cooling as the economy grapples with Covid curbs and softening export demand.
Travel during the National Day golden week holiday, which begins on Saturday, is set to slump to its lowest in years, analysts say, as COVID concerns spur calls for people to avoid travel.
China’s central bank made the biggest weekly liquidity injection on a net basis through short-term bond instruments in more than 32 months.
Real estate developers jumped 3.8%, after the central bank said local governments may relax the floor on mortgage rates for first-time home buyers.
The yuan gave up all the losses it booked this week, after a reported that China’s major state-owned banks were told to get ready to prop up the currency in offshore trades.
Korean Shares Lowest in Over 2 Years
South Korean shares closed at their lowest in more than two years, as automakers and electric-vehicle battery manufacturers slid, with the benchmark index marking its first monthly decline in three.
The won strengthened, while the benchmark bond yield dropped. The benchmark KOSPI ended down 15.44 points, or 0.7%, at 2,155.49 — the lowest close since July 10, 2020.
The index shed 5.9% for the week, the biggest since mid-June. For the month, it dropped 12.8%, the first decline in three, and 7.6% for the quarter, the fifth in a row.
South Korean President Yoon Suk-yeol on Friday called for more sense of urgency in dealing with heightened volatility in share and forex markets.
Losses were the sharpest for automakers and electric vehicle battery manufacturers that tracked US peers’ weakness overnight.
Meanwhile, FTSE Russell said it may add South Korea to its world bond index, paving the way for a potentially huge boost in capital inflows to the country.
Stocks Drop Further DownUnder
Australian shares on Friday posted a third weekly loss and their worst month in three, as concerns over a potential global recession sapped risk appetite.
The S&P/ASX 200 index closed 1.2% lower on Friday. The benchmark ended 1.4% higher in the previous day.
Worries emerged after US central bank officials said overnight they will continue raising borrowing rates to arrest price pressures, even as recession worries and turmoil in global markets lingered.
Central banks from Australia and New Zealand are also set to raise their key policy rates by 50 basis points each in their October meetings in an attempt to tame red-hot inflation.
“We also expect the RBA to ‘soften’ its message by removing the reference to “over the months ahead” in the context of further rate increases,” analysts from ANZ Research said.
Financials led the laggards for the day, losing about 2.3% and for a seventh straight week, with the country’s largest banks falling between 2% and 3%.
Commodities provided some respite to an otherwise gloomy benchmark, with miners climbing about 0.8%, as top steel producer China reported a ramp-up in its output due to rising construction demand.
Indian shares surge on RBI rate hike
Indian shares rose on Friday to record their best quarter in a year, boosted by banks and metal stocks, after the country’s central bank hiked its key policy rate for the fourth straight time as expected to bring down persistently high inflation.
The NSE Nifty 50 index ended up 1.6% at 17,094.35, and the S&P BSE Sensex gained 1.8% to 57,426.92. Both the indexes posted their biggest percentage jump in a month, breaking a seven-day losing streak.
The Nifty and the Sensex ended up more than 8% this quarter.
The Reserve Bank of India (RBI) has now raised interest rates by a total 190 basis points since its first unscheduled mid-meeting hike in May but inflation continues to remain stubbornly high – as in many other countries.
“The fact that there were no negative surprises is what is positive for the markets. It is also positive that the inflation expectation has been maintained,” said Hemali Dhame, associate vice-president of research at Kotak Securities Ltd.
The rate sensitive Nifty bank index rose 2.6%, while the financials gained 2.2% and metals added 2.2%.
“The banking sector is going to do well fundamentally on its own. Their credit growth is strong … If there is sufficient liquidity then the banks will not have to aggressively raise deposit rates, which means they can see a margin expansion in the near term,” Dhame said.
The RBI, which has been spending massive forex reserves to arrest the rupee’s fall against the strong US dollar, said the context of adequacy of foreign exchange reserves is always kept in mind while intervening.
The RBI signalled that foreign exchange interventions are likely to continue to defend any extreme volatility in the rupee, Sakshi Gupta, principal economist at HDFC Bank, said.
- Reuters with additional editing by Jim Pollard