Asia report: Stocks fall on growing fears of recession

Markets in Asia were on the back foot on Tuesday, taking their cues from a dire session on Wall Street overnight, where the Dow lost more than 600 points in its worst day since June.

In Japan, the Nikkei 225 was down 1.19% at 28,452.75, as the yen strengthened 0.07% on the dollar to last trade at JPY 137.39.

Robotics specialist Fanuc was down 1.57%, Uniqlo owner Fast Retailing slipped 0.23%, and tech investing giant SoftBank Group slid 2.42%.

Travel plays were on the front foot, however, with ANA Holdings ascending 3.26% and Japan Airlines up 4.88%.

Earlier in the day, the Nikkei reported that the government was considering easing some of Japan’s strict Covid rules at the border, including ending pre-travel testing for fully vaccinated visitors.

Chief cabinet secretary Matsuno Hirozaku spoke of “lightened” measures for travel on Tuesday, in a bid to balance the need to prevent Covid spread with economic activity.

The broader Topix index was 1.06% weaker by the end of trading in Tokyo, settling at 1,971.44.

Fresh data out of Tokyo showed factory activity growth in Japan slowing to a 19-month low, with the au Jibun flash manufacturing purchasing managers’ index falling to a seasonally-adjusted 51.0 for August, from a final print of 52.1 in July.

“The ongoing decline in Japan’s manufacturing PMI mirrors a broader global slowdown, and so likely has further to run, given the sharp slowdown in Korean exports reported yesterday,” said Craig Botham at Pantheon Macroeconomics.

“We think Japanese manufacturing found some temporary support from China’s post-Omicron reopening, but as China’s July data showed, that boost is already over.

“Backlogs of work fell back below 50 for the first time since February 2021, joining new orders in implicitly falling, month-on-month - further headline declines lie ahead.”

The service sector slipped into contraction, meanwhile, with the flash services PMI from the same bank coming in at 49.2, down from 50.3 in July.

PMI readings above 50 points signal expansion for a sector, while those below 50 denote contraction.

“Unlike the manufacturing PMI, we expect the services PMI to enjoy a modest recovery in the months ahead, as the economy reopens,” Pantheon’s Craig Botham added.

“Consumer spending will face headwinds from rising food and energy bills, but government support is likely to provide an offset.”

On the mainland, the Shanghai Composite slipped 0.05% to 3,276.22, and the technology-centric Shenzhen Component was 0.4% weaker at 12,455.15.

South Korea’s Kospi was down 1.1% at 2,435.34, while the Hang Seng Index in Hong Kong lost 0.78% to 19,503.25.

Seoul’s blue-chip technology stocks were in the red, with Samsung Electronics down 1.5% and SK Hynix falling 1.68%.

The moves lower for the two chipmakers came after World Semiconductor Trade Statistics downgraded its growth forecasts for the industry globally.

It said it now expected the chip market to expand by 13.9% this year and 4.6% next year, down from its previous forecasts for 16.3% and 5.1%.

Sentiment was dampened early in the Asian day, after a big sell-off stateside saw the Dow Jones Industrial Average fall 643.13 points, and the S&P 500 finish 2.14% weaker.

Richard Hunter, head of markets at Interactive Investor, noted the inversion of the yield curve also widened further, suggesting the likelihood of recession was increasing “at an alarming pace”.

“Growth stocks which had received some buying attention on the back of improving prospects were the worst hit, as investors hunkered down and sought haven assets such as the US dollar,” Hunter said.

“After a decent few weeks, the Nasdaq bore the brunt of the selling pressure and slipped back into bear market territory, now down by 21% in the year to date.

“Asian markets were also ruffled by these recessionary fears, quite apart from the local issues which are also weighing on sentiment.”

Oil prices were higher as the region went to bed, with Brent crude futures last up 1.38% at $97.81 on ICE, and West Texas Intermediate ahead 1.64% at $91.84 per barrel in NYMEX trading.

In Australia, the S&P/ASX 200 slid 1.21% to 6,961.80, while across the Tasman Sea, New Zealand’s S&P/NZX 50 was 1.03% weaker at 11,643.21.

The down under dollars painted a mixed picture against the greenback, with the Aussie last 0.09% weaker at AUD 1.4555, while the Kiwi strengthened 0.11% to NZD 1.6195.

Reporting by Josh White at Sharecast.com.