Stocks in Asia Pacific retreated for a second session on Friday, led by a more than 2% drop in South Korea. The selling was driven by the overnight rout on Wall Street amid fears of a second wave resurgence of the coronavirus pandemic.
Volatility has moved to the forefront with two trains of thought likely to fuel a two-sided trade that could lead to whip-saw action. One group of investors see the move as a positive, designed to alleviate some of the upside pressure. The other sees the steep sell-off as the start of a period of uncertainty driven by more cautious investors.
On Friday, Japan’s Nikkei 225 Index settled at 22305.48, down 167.43 or -0.75%. Hong Kong’s Hang Seng Index finished at 24301.38, down 178.77 or -0.73% and South Korea’s KOSPI Index closed at 2132.30, down 44.48 or -2.04%.
In China, the Shanghai Index settled at 2919.74, down 1.16 or -0.04% and Australia’s S&P/ASX 200 Index finished at 5847.80, down 112.80 or -1.89%.
A Pullback is Needed
“The market needed a breather,” Shaw and Partners’ Senior Investment Adviser Adam Dawes told CNBC’s “Street Signs” on Friday. “We’re really confident and comfortable with a pullback because … it’s somewhat needed going forward.”
“For the Australian market and for Asia markets this is a really good pullback,” Dawes said. “It’s now starting to give us some good opportunities to pick up some stocks that we’ve missed out previously.”
Or a New Period of Caution Begins
“Yesterday’s new infection numbers brought the total number of US COVID-19 cases to above two million, with a number of localized hotspots – 18 states are seeing an increase, including Arizona, Florida, Texas and parts of California. And globally, Wednesday’s new case load of 135,000 is the highest daily tally to date,” Ray Attrill, head of foreign exchange strategy at National Australia Bank, wrote in a note.
“Whether the latest COVID-19 news is fanning concerns about fresh lockdowns with all that entails for economic activity, or (and perhaps more realistic, in the US at least) a more extended period of cautious consumer behavior, it is doubtless a factor behind the sharp falls in stocks,” Attrill said.
China Stocks End Only Marginally Lower on Capital Market Reform Hopes
China stocks recouped earlier losses to finish only slightly lower on Friday, led by tech, as investors cheered Beijing’s pledge to push forward with capital market reforms, Reuters reported.
Investors in the A-Share market were encouraged after Beijing said it would publish reform policies for the Shenzhen start-up board to bolster its capital markets. The reforms are part of Beijing’s continued efforts to seek tech self-sufficiency following its launch of STAR Market last July.
Reuters also reported that China will ensure the special funds allocated from the central government this year will reach city and county levels directly to support firms and residents in difficulties, vice finance minister Xu Hongcai told reporters on Friday.