Asian share markets closed broadly lower Tuesday, with major indexes posting their biggest one-day losses in weeks on renewed concerns that markets have climbed too much and too fast against a backdrop of uncertainty about the global economic recovery.
Japan's Nikkei 225 finished 2.8% lower with Australia's S&P/ASX 200 off 3.1%, Hong Kong's Hang Seng Index down 2.9%, South Korea's Kospi Composite 2.8% lower and New Zealand's NZX-50 down 1.2%. In late trading, Singapore's Straits Times Index was off 1%.
"Asian investors are connecting the dots – with the World Bank's help – that the U.S. economy is nowhere near turning around," said Tony Sagami, editor of Asia Stock Alert. "Any Asian companies that depend on Americans for a big chunk of their sales need to prepare for lots of red ink."
The declines in Asia came after the Dow Jones Industrial Average dropped 2.4% Monday in the wake of a World Bank forecast that the global economy will shrink 2.9% this year, a steeper decline than the 1.7% contraction it predicted in March.
"The World Bank's lower GDP forecast is a timely reminder, though well known, that recovery is not a V-shaped trajectory, but a slow gradual process," said Gabriel Yap, senior dealing director at DMG & Partners.
Asian markets "seem to have overshot themselves – up 60% from the lows in the short term," he said. "What we are entering into is an 'information vacuum' period where the [Asian] markets await the next quarter earnings [and] confirmation of how strong the economic data points are coming out to affirm or contravene the conventional acceptance of a global recovery next year."
In the meantime, the "current correction is healthy for the market in the longer term," Mr. Yap said.
Oil and metals shares were among the biggest losers in Asia Tuesday. "The rally in commodity prices went too far, too soon," said Craig James, chief economist at CommSec. "Fund managers are urgently trying to lock in gains."
Fortescue Metals closed down 9.8% in Sydney with Bluescope Steel off 6.1%, Alumina down 9.7%, Sims Metal down 3.4%, Rio Tinto falling 2.8% and BHP Billiton off 4.1%. Korea's Posco shed 3.8%, while in Japan, Nippon Steel fell 3.6% and Nippon Light Metal shed 5.1%.
In Hong Kong, PetroChina shed 4.4%, while Jiangxi Copper's H-shares dropped 6%.
Barclays Capital said the main reason for the declines was "speculation surrounding the possibility of a slowdown in Chinese import buying of commodities. (We feel) this poses the single biggest downside risk, especially for metal and agricultural prices. There are already some early signals that Chinese demand is beginning to ebb."
On Globex, gold for August delivery shed $1.20 to $919.80 an ounce from New York levels. August crude was 23 cents lower at $67.27 a barrel after touching a fresh three-week low of $66.37.
"Speculators are moving from one target to another, seeking quick profits, (but) they will eventually come back to the crude market" as long as liquidity is maintained, said Tokai Tokyo Research Center analyst Katsumi Hosoi.
Markets were also cautious before a two-day meeting of the Federal Open Market Committee.
"There are a lot of nuances to communicate to the market: The Fed thinks they are more or less done, but aren't about to take away the punch bowl. The potential for misinterpretation and market mishap in the aftermath of this meeting is substantial," said Rabobank International.
Meanwhile, a rising yen hurt exporter shares in Tokyo, with Nikon off 6.6% and Advantest down 5.6%.
Financial stocks were sold in Korea, with Shinhan Financial ending down 1.6%. There were also losses among Australian banks, with Westpac off 4.5%. Hong Kong heavyweight HSBC dropped 2.7% and in late afternoon trading, Singapore's DBS shed 1.9%.
Most China shares edged lower on continued liquidity concerns, given the recent resumption of initial public offerings after a nine-month moratorium. The Shanghai Composite Index finished down 0.1%.
"The biggest concern is when the government will launch big IPOs and how many large companies will initially be allowed to raise funds from the capital market," said Simon Wang at Guoyuan Securities.
Gome Electrical Appliances Holdings was a standout in Hong Kong, though, closing 68.8% higher after sealing a deal with Bain Capital to raise at least 3.24 billion Hong Kong dollars ($413 million).
Taiwan's main index fell 2.3%, Thai shares were off 3.4%, and Philippine shares fell 1.7%. In late trading, Indonesian shares were down 2.5%, Malaysian shares were off 0.5% and India's Sensex declined by 0.9%.
In currency trading, the U.S. dollar was at ¥95.17, down from ¥95.99 late in New York, with the euro at $1.3890, from $1.3865, and at ¥132.21, from ¥133.12.
Analysts at Calyon said Asian currencies looked vulnerable to an increase in risk aversion. Equity capital "outflows from Asia last week totaled $1.25 billion and the trend appears to have continued this week, pointing to further downside risks to Asian currencies."
Still, Kazuaki Oh'e, executive director of debt capital markets at CIBC World Markets in Tokyo, said gains may fade given the hefty auction slate this week, and before the Fed meeting. "This is not such good timing to buy. The first reaction (to expected equity weakness) is to buy, but at some point we'll see some profit-taking. If you're already long, you must be nervous."
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