Asia Hit By Wall St's Tumble, China Stock Indexes Lose 6 Percent

Asian shares sank on Friday, with Chinese equities on track for their worst day in two years, as fears of higher U.S. interest rates shredded global investor confidence.

There was limited immediate market reaction to the U.S. government staggering into another shutdown after Congress missed a Thursday midnight deadline to renew funding.

S&P mini futures retained modest gains and were last up 0.4 percent.

Spreadbetters expected Europe markets to start lower, forecasting an 0.8 percent drop for Britain’s FTSE, and declines of 0.2 percent for Germany’s DAX and France’s CAC.

On top of pressure from the drop in global shares, Chinese equities were weighed down as investors sought to stay liquid ahead of the Lunar New Year holidays and pressure was felt to meet rising margin calls. [.SS]

The Shanghai Composite Index tumbled 6.0 percent to its lowest since May 2017, and the blue chip CSI300 index dived as 6.1 percent. Both indexes were on track for their largest single-day losses since February 2016.

Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said Chinese shares slid mostly because of the U.S. correction but he had some China-specific worries.

He said he now is neutral on China equities “due to two concerns: valuations on China-consumer related industries and execution risks on deleveraging (more specifically financial deleveraging)”.

Japan’s Nikkei shed 2.9 percent, en route for a weekly loss of 8.6 percent - its biggest since February 2016.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.2 percent to a two-month low.

The index, which hit a record high on Jan. 29, was on track for its sixth straight day of losses and stood to fall 7.6 percent on the week.

“The correction phase in equities could last through February and possibly into March,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo.

“The rise in long-term U.S. yields will have to settle for the correction phase to end. The surge in volatility has also prompted investors to sell risk assets, in turn feeding volatility.”

U.S. markets remained the epicenter of the global sell-off, with the Dow plunging 4.1 percent and the S&P 500 sinking 3.7 percent overnight.