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Why the US stock slump is hitting global markets hard

A sharp drop in US stocks is causing tremors thousands of miles away in Asia and Europe.Major share i...

Posted: Oct 11, 2018 1:42 PM
Updated: Oct 11, 2018 1:42 PM

A sharp drop in US stocks is causing tremors thousands of miles away in Asia and Europe.

Major share indexes in the United Kingdom, Germany and France fell more than 1% in early trading, following Wednesday's bloodbath in American markets, where the Dow plunged 3.2%.

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The steepest losses in global stocks were in Asia, where some regional markets were already struggling. Stocks in Shanghai and Hong Kong entered bear market territory earlier this year.

Shanghai and Tokyo closed down 5.2% and almost 4%, respectively, on Thursday. Hong Kong's market dropped over 3.5%.

The US sell-off delivered a fresh hit to the confidence of Asia investors, said Jingyi Pan, a strategist at trading firm IG Markets.

Investors are very pessimistic about the Chinese market, which is being buffeted by the country's economic slowdown and the trade war with the United States, said Hao Hong, head of research at investment bank Bocom International.

Chinese tech stocks suffer

Just like in the United States, tech stocks were among the biggest losers. Chinese social media and gaming company Tencent (TCEHY) sank almost 6% on Thursday, while smartphone maker Xiaomi plummeted more than 8%.

Share prices in Asia are getting hurt by the recent rise in yields on US Treasury bonds, which are now near a seven-year high. Stocks tend to slump after sharp spikes in yields because that makes bonds, which are seen as safer assets, more appealing. Asian stocks are particularly vulnerable, since they're viewed by traders as riskier than US ones.

Higher borrowing costs also squeeze company profits.

Tech stocks are particularly vulnerable because they are among the most highly valued parts of the stock market, according to metrics widely used by investors. When investors get nervous, they are more likely to offload tech companies and move into assets that are seen as less risky, such as utility firms.

Hong Kong's market often reacts to movements in US Treasury yields because the Chinese territory, whose currency is pegged to the dollar, follows the US Federal Reserve's monetary policy, Hong said.

European fears

Shares in automakers were among the hardest hit in Europe. Fiat Chrysler (FCAU) and Volkswagen (VLKPF) both shed over 3% in early trade, while Daimler (DDAIF) dropped 2.6%.

Banks in the region also suffered shares price declines, with Santander (SAN) and HSBC (HSBC) each giving up more than 2%.

Kit Juckes, a strategist at Societe Generale, said that investors were paying more attention to local events in Europe, where Brexit and rising political risks in Italy have been front of mind.

In Germany, where exports drive the economy, intensifying global trade conflicts have been reflected in stocks. The benchmark Dax entered correction territory in February.

Carmakers such as BMW (BAMXF) have been slammed by the trade war with China.

What comes next

Investors have other reasons to fret, including a potential slowdown in global economic growth, the strengthening dollar and the next phase of the global trade war.

Money manager Fidelity argues that Asian stocks are still "compelling" for investors because stocks are generally cheaper there than in the United States. They could rise in the long term as Asia becomes wealthier.

"The long-term fundamental story for Asia led by rising domestic consumption remains unchanged," said Medha Samant, investment director for Asian equities at Fidelity International.

Juckes argued that US markets were playing catch up to trends that have already affected global currencies and emerging markets.

"For much of 2018, the US economy has been oblivious to a turn in the global economic cycle," he said. "This week has seen the S&P, and the Nasdaq, sit up and pay attention to what's going on."

Indiana Coronavirus Cases

Data is updated nightly.

Cases: 608519

Reported Deaths: 9693
CountyCasesDeaths
Marion840461335
Lake45349684
Allen32803548
Hamilton29394315
St. Joseph27380381
Elkhart24404345
Vanderburgh19411249
Tippecanoe17970138
Johnson15069295
Porter14783169
Hendricks14401248
Madison10965221
Vigo10726181
Clark10677144
Monroe9383110
Delaware9116134
LaPorte9065163
Howard8236144
Kosciusko806983
Warrick672999
Hancock6697104
Bartholomew6484100
Floyd6428110
Wayne6136162
Grant5991115
Dubois555579
Boone551168
Morgan541295
Henry507864
Marshall503984
Cass483263
Dearborn479845
Noble473059
Jackson425047
Shelby417581
Lawrence391079
Clinton373043
Gibson370359
Harrison348144
DeKalb347164
Montgomery345754
Knox335639
Miami321444
Steuben313745
Whitley307326
Wabash303251
Adams300936
Ripley298445
Putnam296850
Huntington291659
Jasper289034
White273243
Daviess270474
Jefferson263338
Decatur247683
Fayette247148
Greene239862
Posey239328
Wells236051
LaGrange228862
Scott225339
Clay222532
Randolph213548
Jennings198936
Sullivan192333
Spencer191321
Washington186423
Fountain184027
Starke175443
Jay167623
Owen165737
Fulton164030
Orange159534
Carroll158015
Rush155118
Perry154229
Vermillion149134
Franklin148333
Tipton132332
Parke13078
Pike116926
Blackford111022
Pulaski97037
Newton90921
Brown88035
Benton86610
Crawford7999
Martin73713
Warren6817
Switzerland6615
Union6287
Ohio4907
Unassigned0376

Ohio Coronavirus Cases

Data is updated nightly.

Cases: 859841

Reported Deaths: 10680
CountyCasesDeaths
Franklin101171707
Cuyahoga855711125
Hamilton64017448
Montgomery43107418
Summit34836761
Lucas31350625
Butler30973232
Stark25786435
Warren19671140
Lorain19017223
Mahoning17321338
Lake16080154
Clermont15926111
Delaware1438878
Licking13204137
Trumbull12809316
Fairfield1279381
Greene12055137
Medina11591168
Clark10942265
Wood10348158
Allen9897126
Portage9296109
Miami916873
Richland9139118
Marion7459113
Tuscarawas7381182
Columbiana7327124
Pickaway726150
Wayne7034171
Muskingum703141
Erie6152129
Hancock552390
Ross548998
Scioto539164
Geauga508455
Darke470292
Ashtabula453073
Lawrence452654
Union451828
Sandusky436662
Mercer433589
Seneca430166
Huron428741
Auglaize422264
Shelby421222
Jefferson419269
Belmont416840
Washington388740
Athens38009
Putnam374975
Madison355129
Knox352622
Ashland344938
Fulton338443
Defiance330086
Crawford322374
Preble320637
Brown312921
Logan307332
Ottawa293943
Clinton290143
Williams278667
Highland275118
Jackson263845
Guernsey254125
Champaign252028
Fayette236530
Morrow23234
Perry231318
Holmes225474
Henry218749
Hardin213033
Coshocton205622
Van Wert202245
Gallia196726
Wyandot196051
Pike176217
Adams176115
Hocking172024
Carroll155616
Paulding144321
Noble120540
Meigs108624
Monroe100732
Harrison89121
Morgan83130
Vinton70213
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