Asian stock markets plummeted on Thursday after the US Federal Reserve said it could start scaling back its huge economic stimulus programme later this year.
The announcement on Wednesday in Washington drew sharp reaction in financial markets, showing just how dependent investors have become on the Fed’s easy money policies.
The Fed has been buying $85 billion worth of bonds each month to keep long-term interest rates low to boost borrowing and spending. On Wednesday, however, the Fed said the US economy was strengthening, and Chairman Ben Bernanke said the bank’s purchases will likely slow down this year and end next year.
Normally, stock markets go up when the economic outlook improves. But occasional hints that the US central bank would scale back its program have sent stock markets reeling.
“Any whiff there’s going to be reduction in the (Fed’s) ammunition is met with selling,” said James Camp, managing director of fixed income at Eagle Asset Management.
Tokyo’s Nikkei 225, the regional heavyweight, was down 2 per cent at 12,985.65. Benchmarks in South Korea, Indonesia, Singapore, Thailand and Australia each fell more than 2 per cent. In the Philippines, the benchmark was down more than 3 per cent. In India, the Sensex slipped below the 19,000-point mark to trade at 18,744.36.
Hong Kong’s Hang Seng index tumbled 2.7 per cent to 20,429.52 after a private survey showed a slowdown in manufacturing in China for the month of June. Mainland Chinese shares also fell. HSBC’s preliminary purchasing managers index fell to a nine-month low of 48.3 in June, down from 49.6 in May. Numbers below 50 indicate a contraction.
Andrew Sullivan of Kim Eng Securities in Hong Kong said what is worrying is that it’s the second month that the PMI fell below 50, indicating further slowing ahead.
“We all know that (China) has been trying to reorient its economy from being an exporting one to more domestic consumption, and that process is going to take time,” he added.
Sullivan said a number of banks have been lowering their growth forecasts for China recently and ‘the concern will be whether we see another round of forecasts being cut.”
Among individual stocks, Japan’s Suzuki Motor Corp. fell 6.9 per cent. Nikon Corp. plunged 6.5 per cent. But Sony Corp. was one of the rare gainers, rising 0.4 per cent on the heels of a shareholders’ meeting at which Chief Executive Kazuo Hirai said the company was going to take time to study a proposal to spin off a part of its entertainment unit.
On Wall Street on Wednesday, the Dow Jones industrial average fell 1.4 per cent to 15,112.19. The Standard & Poor’s 500 index fell 1.4 per cent, to 1,628.93. The Nasdaq composite index fell 1.1 per cent, to 3,443.20.
Benchmark oil for July delivery fell $1.75 to $96.67 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 67 cents to close at $98.44 a barrel on the Nymex on Tuesday.
In currencies, the euro fell to $1.3254 from $1.3274 late on Wednesday in New York. The dollar rose to 96.90 yen from 96.54 yen.