Asia shares drop on jitters over virus, China-US friction

TOKYO (AP) – Shares fell in Asia yesterday as scepticism set in about the recent upward momentum in global markets given rising confirmed coronavirus cases and percolating tensions between the United States (US) and China.

The White House’s decision to reject nearly all Chinese maritime claims in the South China Sea added to investor jitters. The world’s two largest economies have been sparring over everything from the pandemic to human rights.

Japan’s benchmark Nikkei 225 sank 0.8 per cent in early trading to 22,609.57. South Korea’s Kospi lost 0.4 per cent to 2,177.01, while Australia’s S&P/ASX 200 dropped 0.8 per cent to 5,932.70.

Hong Kong’s Hang Seng tumbled 1.9 per cent to 25,277.06 as reports of locally transmitted coronavirus cases prompted authorities to tighten precautions against the pandemic. The Shanghai Composite lost nearly 1.2 per cent to 3,403.78.

One indicator of how bad the regional damage could get came from the advance estimate of Singapore’s gross domestic product, or GDP, for the second quarter. It showed a 12.6 per cent year-on-year contraction, confirming Singapore’s worst recession ever.

A man looks at an electronic stock board showing Japan’s Nikkei 225 index at a securities firm in Tokyo. PHOTO: AP

“It is also the weakest result among our estimates for most Asian economies,” said Prakash Sakpal, a senior economist at ING, noting that the number was dismal, even though “Singapore wasn’t as badly affected by the COVID-19 pandemic as some of its Asian neighbours.”

Wall Street is getting a painful reminder of the threat the pandemic poses to the economy, as re-openings bring on fresh spikes in coronavirus cases.

The S&P 500 fell 0.9 per cent, with all the losses accumulating in the last hour of trading after California said it will extend closures of bars and indoor dining across the state, among other restrictions. It’s one of many states across the US West and South where coronavirus counts are accelerating and threatening the budding recovery that just got underway for the economy.

The announcement from California, which accounts for nearly 15 per cent of the country’s economy, combined with the escalation by the White House of its tensions with China to knock the market down from its earlier gain of 1.6 per cent.

Technology stocks took the hardest hits, highlighted by Microsoft’s swing from an early gain of one per cent to a loss of 3.1 per cent.

It’s a sharp step back for tech-oriented giants, which have been cruising higher through the pandemic on bets that they can keep growing almost regardless of the economy.

“There’s an increasing sense that the recovery from the virus related shutdown is going to be more drawn out, more uneven than maybe the market was looking for,” said Willie Delwiche, investment strategist at Baird. “And you add on top of that a number of tech companies that had run up tremendously over the past couple of weeks, so there’s a little bit of shaking out there as well.”

The tech losses helped drag the Nasdaq composite down 2.1 per cent to 10,390.84. The Dow Jones Industrial Average squeaked out a gain of less than 0.1 per cent, to 26,085.80. It had earlier been up 563 points. The S&P 500 dropped 29.82 points to 3,155.22.

In a signal investors are downgrading their expectations for the economy, Treasury yields fell and smaller stocks did worse than their larger rivals. The Russell 2000 index of small-cap stocks lost 1.3 per cent.

The volatility struck markets just as Corporate America is set to tell Wall Street how badly the pandemic hit their bottom lines.

Several of the country’s biggest banks are slated to report their results soon, including JPMorgan Chase, and the expectations are almost universally dreadful across the S&P 500.

Analysts said the biggest US companies likely saw their earnings per share plummet nearly 45 per cent from April through June, compared with year-ago levels. That would be the sharpest drop since the depths of the Great Recession in 2008, according to FactSet.

Investors are expecting banks, which traditionally kick off each earnings season every three months, to say they’ve had to set aside billions of dollars to cover loans potentially going bad due to the pandemic-caused recession, for example.

For energy stocks, whose earnings reports get going later in July, Wall Street expects profits to have disappeared completely. Exxon Mobil is expected to report its second losing quarter in a row.