Asia: Japan closes in bear market as oil prices tumble below $28

Japan’s Nikkei index closed in a bear market on Wednesday and other Asian stocks declined as oil price hit new lows and as concerns about China’s flagging economy escalated.

The Nikkei fell 3.71% to 16,416 points on the day and was down 21% compared to its closing high in June. A bear market occurs when equities drop at least 20% from a recent peak.

Hong Kong’s Heng Seng index closed down 3.82% to 18,886 points, marking the first time the benchmark has fallen below 19,000 since July 2012.

The Hong Kong dollar fell to its weakest level since 2007 at 7.8228 against the US dollar after data showed another easing in China’s economy.

Gross domestic product in China unexpectedly fell to 6.8% in the fourth quarter from 6.9% in the previous quarter, official data showed on Tuesday.

Worries on China’s economy also sent the Shanghai Composite down 1.02% to 2,977 points at the close.

Another drop in oil prices also weighed on markets. At 0949 GMT, Brent crude decreased 2.9% to $27.93 per barrel and West Texas Intermediate slid 3.0% to $28.69 per barrel.

The International Energy Agency on Tuesday warned that oil prices will likely slide further this year as the market contends with an oversupply of production following the lifting of Iran sanctions.

“Since the beginning of this year equity markets have not only spun their wheels, they have lost any semblance of positive traction as continued concerns of oversupply in the oil and gas market set against a backdrop of slowing global growth has seen stock markets across the globe slip back into bear market territory,” said Michael Hewson, chief market analyst at CMC Markets.

“Even the expectation of further stimulus from Chinese authorities hasn’t been enough to buck the trend and the risk is that we could well see further losses until such times that oil prices give any indication that they might be able to find a floor.”

The People’s Bank of China on Tuesday said it would inject 600 billion yuan of funds into the financial market to meet medium-term liquidity demand.

Some analysts expect the bank to cut reserve requirement ratios for banks before the Chinese Lunar New Year.

Meanwhile, the PBoC on Wednesday guided the currency onshore to its strongest level against the US dollar since 6 January. The yuan was last at 6.5793, broadly unchanged from its previous close. In onshore trading the currency is allowed to be set 2% above or below the bank’s daily “fix”.

The Japanese yen rose 1.3% to 116.04 versus the dollar, its strongest level in nearly a year. A stronger yen hurts exporters as it makes the cost of selling goods overseas more expensive.