AP – Asian shares were moderately lower yesterday after an overnight rout on Wall Street as investors were spooked by reports of rising coronavirus cases in the United States (US).
Fear that a so-called “second wave,” is already coming has punctured bubbling optimism that a quick economic recovery was already underway. That pushed the Dow Jones Industrial Average down almost seven per cent on Thursday. However, Wall Street futures pointed to a steady open yesterday, with the contracts for the S&P 500 and Dow industrials up about 0.7 per cent.
Japan’s benchmark Nikkei 225 plunged on the open but ended down only 0.8 per cent, at 22,305.48.
South Korea’s Kospi lost two per cent to 2,132.30. Australia’s S&P/ASX 200 skidded 1.9 per cent to 5,847.80. Hong Kong’s Hang Seng shed 1.1 per cent to 24,216.05, while the Shanghai Composite shed one point to 2,919.74.
India’s Sensex declined 1.7 per cent to 32,970.36 and shares also fell in Taiwan and Southeast Asia.
Losses were milder in Asia than in the US partly because markets in the region have not seen massive gains in recent weeks: outbreaks of the virus, travel disruptions and business shutdowns remain apparent and hopes for a quick rebound more modest.
Although daily newly confirmed cases in Japan have fallen to double-digit levels, workers are returning to work and stores are reopening, without a strong US recovery there are scant expectations for an escape from recession, analysts say.
“It appears that worries about ‘second wave’ of infections have hit, with a swell in the number of cases in states like Arizona and Texas giving cause for concern,” said Riki Ogawa at Mizuho Bank’s Asia and Oceania Treasury Department, noting US Treasury Secretary Steven Mnuchin has said the US can’t afford another lockdown.
“Reports of positive cases from the global protest marches are probably also unearthing fears that a ‘second wave’ may squander the costly curve flattening efforts taken earlier,” Ogawa said.
The Dow Jones Industrial Average sank 6.9 per cent, or 1,861.82 points, to 25,128.17. The S&P 500 dropped 5.9 per cent to 3,002.10, its worst day since mid-March when stocks went through repeated harrowing falls as the virus lockdowns began.
The Nasdaq composite, which rose above 10,000 for the first time a day earlier, lost 527.62 points, or 5.3 per cent, to 9,492.73.
The S&P 500 rallied 44.5 per cent between late March and on Monday, erasing most of its losses tied to the pandemic. Skeptics have been saying the rally was overdone.
As businesses reopen and people emerge from stay-at-home orders, cases are climbing in nearly half the states, according to an Associated Press (AP) analysis.
“Not surprisingly, a lack of preventative behavior has led to a resurgence in COVID-19 cases around the country, and the stock market is having another gut check,” said Chief Investment Officer for Independent Advisor Alliance Chris Zaccarelli.
The Federal Reserve warned on Wednesday that the road to recovery from the worst downturn in decades will be long and vowed to keep rates low for the foreseeable future. It estimated that the economy will shrink 6.5 per cent this year, in line with other forecasts, before expanding five per cent in 2021. It also expects the unemployment rate to be 9.3 per cent by the year’s end. It’s now 13.3 per cent.
Those factors, along with the recent run-up in stock prices, set the stage for the wave of selling on Thursday.
Small company stocks are bearing the brunt of the selling, a signal that investors are becoming more pessimistic about a broad recovery in the economy.