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Asia markets tumble as investors scurry into safe-haven plays on growth concerns

Wang Zhao | AFP | Getty Images

Markets in Asia sold off on Wednesday, as investors scurried into safe-haven plays on global growth concerns, sending bond yields to record lows. Renewed Brexit jitters also sent the British pound tumbling to a fresh 31-year low.

The British pound traded at $1.2935 as of 3:05 p.m. HK/SIN, after dropping to a fresh 31-year low of $1.2796 earlier.

The tumble began overnight as investors flocked to safe-haven assets, such as U.S. Treasurys, the yen and the greenback, after three U.K. real estate funds halted selling and the Bank of England relaxed regulations to encourage banks to lend out more money.

Japan's Nikkei 225 closed down 290.34 points, or 1.85 percent, at 15,378.99, after earlier tumbling as much as 3.2 percent on the back of fresh yen strength. The Japanese yen, a safe-haven asset, traded at 101.04 as of 3:06 p.m. HK/SIN, after the pair traded as low as 100.56 earlier and compared with levels near 103 on Friday.

"There's a high level of complacency in dollar/yen trade as the markets have no defined direction other than chasing risk sentiment," said Stephen Innes, a senior trader at OANDA. "I expect further probes lower as the latest Brexit sell-off is simply the tip of the iceberg."

The yen strength saw Japanese exporters decline, with shares of Honda closing down 4.55 percent, Toyota off 1.73 percent and Nissan falling 2.01 percent.

Australia's ASX 200 closed down 30.50 points, or 0.58 percent, at 5,197.50, with the energy, materials and the heavily-weighted financials weighing. South Korea's Kospi dropped 36.73 points, or 1.85 percent, to 1,953.12, while Hong Kong's Hang Seng index tumbled 1.6 percent in afternoon trade.

On the Chinese mainland, the Shanghai composite bucked the trend, closing up 10.70 points, or 0.36 percent, at 3,017.09 after wavering between positive and negative territory throughout the session.

"The heady post-Brexit rally looks to be at an end, with all major U.S. and European markets down overnight except the FTSE 100, which moved higher only as a response to the further decline in the pound," said Angus Nicholson, a market analyst at spreadbettor IG.

Among safe-haven assets, the dollar advanced against a basket of currencies to trade at 96.290 in the afternoon Asia time, compared with the 95.631 level on Tuesday during Asian hours.

"We saw investors flock into the safety of U.S. dollars as the liquidation spread to stocks, commodities, the euro, Australian and Canadian dollars," said Kathy Lien, managing director of foreign exchange strategy at BK Asset Management.

The yield on the benchmark 10-year Treasury touched new lows during Asian hours, falling as low as 1.345 percent, extending overnight declines and marking an all-time low, according to Reuters Tradeweb data, which go back to 1953.

Analysts expect Treasury yields to continue their decline and for the coupon curve to flatten.

Mark Cabana from Bank of America Merrill Lynch said in a note there will be two key drivers of Treasurys: "First, a flight out of gilts by risk-averse foreign investors should benefit Treasurys ... second, attracting global liquidity when real rates are constrained and monetary policy is considered ineffective is not good news for inflation expectations," he said.

The yield on the 10-year benchmark gilt was 0.788 percent, down from levels above 1.0 percent last week.

In Japan, the yield on the 10-year Japanese government bond (JGB) fell as low as negative 0.281 percent earlier in the session before climbing back slightly to negative 0.266 percent. Reuters also reported the yield on the 20-year JGB turned negative for the first time on Wednesday, falling to negative 0.005 percent.

Gold prices advanced, with spot gold up 0.8 percent at $1,366.51, compared with levels near $1,320 in the previous week. Gold miners in Australia bucked declines in the broader market to close up; Newcrest shares advanced 3.18 percent, while Evolution Mining was up 6.5 percent.

Symbol
Name
Price
 
Change
%Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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On Tuesday, the Bank of England governor, Mark Carney, sent a clear message to Britain's cautious bankers: They needed to start lending more money. The central bank cut the amount of capital it required banks to hold in reserve, which freed up an extra 150 billion pounds ($196 billion) for lending.

Rodrigo Catril, a currency strategist at the National Australia Bank, said the pound had a small reaction to Carney's comments and the sell-off was part of a global flight to safety. "Fears of financial contagion have triggered a demand for safety, dragging core global yields to new historical lows," he said.

Nicholson added that Carney's words could have spooked investors further. "[His] speech seems to have initiated the dawning of realization of the longer-term impact of Brexit for many in the markets," he said.

Fueling risk aversion was the news that U.K. asset managers Standard Life, Aviva and M&G Investments have suspended dealing in their U.K. property funds, leaving investors and fund managers worried about consequences on the broader sector.

The U.K., however, has yet to invoke Article 50 of the Lisbon Treaty, which will formally start negotiations for an exit from the EU.

Currently, the ruling Conservative party is in the midst of finding a successor to Prime Minister David Cameron, who resigned following the June 23 public vote to leave the EU.

Oil prices pared early losses to advance during Asian hours, with global benchmark Brent up 0.27 percent to $48.09 a barrel, while U.S. futures were up 0.32 percent to $46.75.

Adding to risk aversion, stateside data showed factory orders declined 1 percent in May after two straight months of increases. The highly anticipated nonfarm payroll report is due Friday.

Elsewhere, in a speech on Monday, Chinese Premier Li Keqiang said it would not be easy for China to achieve a growth rate of 6.7 percent in the first quarter, according to Xinhua News Agency.

U.S. markets snapped a four-day winning streak as they returned to trade on Tuesday after closing Monday for the July 4 holiday.

The Dow Jones industrial average closed down 108.75 points, or 0.61 percent, at 17,840.62; the S&P 500 index was down 14.4 points, or 0.68 percent, at 2,088.55 and the Nasdaq composite was down 39.67 points, or 0.82 percent, at 4,822.90.

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