(Reuters) – Asian share markets rebounded on Tuesday from a historic sell-off, underpinned by a sharp recovery in Japanese stocks after U.S. central bankers sought to ease recession fears and Japan’s leaders urged calm.
Japan’s Nikkei soared more than 10% after plunging 12% on Monday in its biggest one-day percentage drop since October 1987.
Currency markets remained on edge, with the yen down nearly 1% after rising for five straight sessions to a seven-month high on Monday.
QUOTES
JOHN MILROY, PRIVATE WEALTH ADVISOR, ORD MINNETT, SYDNEY
“It has been a long while since we have seen these outsized moves. I’m not sure if the bounce is sustainable, but these moves are reflective of a market that is trading expensively. There is still a sizable amount of cash sitting on the sidelines so I wouldn’t expect further big falls to last too long, but I note that the VIX has been edging higher over the last month.”
WONG KOK HOI, FOUNDER AND CO-CIO, APS ASSET MANAGEMENT, SINGAPORE
“The sell-off was scary especially of certain stocks like Intel, Nvidia, etc and therefore the euphoria which had driven up markets like the U.S. and Japan would likely take a pause. Sanity and rationality should return somewhat. What is less certain is the extent of the leveraged carry trades and quant strategies and the losses suffered. Inevitably, some would get hurt badly yesterday and may not even survive this vicious rout.”
RYOTA ABE, ECONOMIST, SMBC, SINGAPORE
“The size of sell-offs seen thus far is too much and fears of recession in the U.S. economy have eased. Market sentiment will improve with some higher caution on the global economy and the geopolitical risks than before.
“And the U.S. economic data which will be available in quarters ahead will likely suggest the economy will continue slowing, which may bring a view that the economy will someday be going to enter recession. In a word, optimistic cautiousness will be always there in markets.”
VASU MENON, MANAGING DIRECTOR OF INVESTMENT STRATEGY, OCBC, SINGAPORE
“At this juncture, it is too early to call the market bottom given multiple moving parts and the momentum of selling. However, the key question to ask would be whether the economic and earnings outlook has changed materially and for now, it’s too early to jump the gun. We will have to monitor economic data in the coming weeks to see if recession fears are indeed warranted.
“With stock markets plunging around the world, traders are talking up the prospect of an emergency interest-rate cut from the Fed after it passed up the opportunity to ease policy last week. This seems unlikely. The market sell-off is due to an unwinding of yen carry trades and AI concerns and not because the U.S. economy is broken and in dire straits. So, there is no reason for the Fed to step in and mitigate losses for equity investors.”
CHARU CHANANA, HEAD OF CURRENCY STRATEGY, SAXO, SINGAPORE
“There seems to be some calm in the markets, probably because the selloff was too fast. Perhaps markets could reassess its calls for an intermeeting rate cut from the Fed without anything having broken really.
“However, recession concerns will likely remain easy to trigger as the U.S. growth slowdown broadens, and the market will likely remain fragile as it continues to look for some sort of a response from the Fed.”
RAY SHARMA-ONG, HEAD OF MULTI-ASSET INVESTMENT SOLUTIONS FOR SOUTHEAST ASIA, ABRDN, SINGAPORE
“Fundamentally, nothing significant has changed for the Japanese economy. It is the unwinding of the carry trade driving a lot of the momentum sells.
“The Japanese market tends to overshoot on the downside during periods of aggressive selling. Over the past 10 years, there were three corrections where the TOPIX sold off more than -10% (May 2013, Jan 2014, Sep 2014), with the market recovering shortly after each.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“The Nikkei’s enjoying a decent retracement against Monday’s plunge, as comments from the Fed’s (Mary) Daly and a stronger-than-expected ISM services report soothed fears of a panic Fed cut next week. But this is not exactly a risk-on rally. And we’re not yet sure if this is just a breather between water-boardings or there is more pain to follow.
“But with the VIX futures curve in backwardation, I suspect price action to remain choppy and fickle until the dust truly settles. And with so many burned fingers to contend with, it is hard to see a risk-on rally materialising any time soon. Right now, a pause will do.”
RON SHAMGAR, HEAD OF AUSTRALIAN EQUITIES, TAMIM ASSET MANAGEMENT, SYDNEY
“My view is that this market turmoil is mostly driven by the yen carry trade being partly unwound. That’s happened on the same day where U.S. jobs numbers came in slightly weaker than expected and a potential imminent attack by Iran on Israel.
“Combine those factors with a market that so far hasn’t seen the usual and bi-annual pullback or correction of 5-10% this calendar year – and you had a so-called rug pull. We think volatility will persist over the next few weeks and stock prices direction will be dictated by the upcoming results season in Australia and the U.S. during late August.”
GARY NG, SENIOR ECONOMIST FOR NATIXIS, HONG KONG
“It is hard to say the worst is behind us … pressure might linger a little bit.”
“There are many moving parts, with three key concerns come from the outlook of the U.S. economy, the unwinding of investors’ trades in Japan and geopolitical risks in the Middle East … particularly the last one, which has not been fully realised for now. As for the U.S. recession outlook, we see some sectors in the economy like consumption still holding up, and datasets in the coming weeks might come out not as bad as the surface looks, and it may help stabilise things.”
ANDREW JACKSON, HEAD OF FIXED INCOME, VONTOBEL, LONDON
“Last week’s soft U.S. jobs data has continued to wreak havoc across markets, with many asset classes, sectors and regions suffering major declines. The first step of this price correction was in line with our expectations based on the recent data; but we are likely now entering an overshoot territory.
“That said, the fact remains that markets are generally still at or near highs, so the severity of the correction remains unclear. Corporate bonds remain well insulated from the market shock, so any outflows, which could be a catalyst for further declines in already stressed markets, are likely to be muted and we even see a possibility for inflows.”
ROB ALMEIDA, GLOBAL INVESTMENT STRATEGIST AND PORTFOLIO MANAGER, MFS INVESTMENT MANAGEMENT, BOSTON
“It is hard to know what the stress point for the sell-off was. We think it’s a combination of many factors that have led to too many leveraged trades heading for an exit that can’t fit all of them.
“Many wonder whether the market is overreacting. Price is what you pay and value is what you get. The price of risk assets was too high and value (i.e., returns on equity) we believe was below what people have been expecting. Volatility is the market adjusting for incorrect assumptions, which brings us back to the prior question, the market’s expectations about incomes, we think, was too high. While profits or earnings have yet to crash, markets discount it before it happens via tangential evidence – which is perhaps what it got last week.”
(Compiled by the Global Finance & Markets Breaking News team)