Asian markets plunged on Tuesday as investors dumped stocks following heavy falls in the US.
At one point Japan’s Nikkei 225 index was down 7 per cent, but recovered some of those losses to close 4.7 per cent lower.
Asian shares were reacting to heavy losses in the US, where the Dow lost 4.6 per cent - the biggest loss in six years.
The falls follow some good years for investors. In 2017 the Dow was up 25 per cent, helped by a resurgent economy, strong profits and low interest rates.
The sell-off began last week after a solid US jobs report fuelled expectations that the economy’s strength was such the Federal Reserve would need to raise interest rates faster than expected.
Jane Sydenham, investment director at the stockbrokers Rathbones, told the BBC the falls did not appear to herald a serious change of sentiment: ‘It is always a bit too early to tell, but I think it [the market fall] is in the nature of a correction.
‘What we have to remember is stock markets have had a very smooth ride upwards and we’ve not had a fall of more than 3 per cent for 15 months and there’s been a real lack of volatility which is very unusual.’
She added that bear markets tend to happen ahead of a recession and at the moment growth forecasts were being upgraded.
Erin Gibbs, portfolio manager for S&P Global Market Intelligence, said: ‘This isn’t a collapse of the economy.
‘This is concern that the economy is actually doing much better than expected and so we need to re-evaluate.’
One country whose immediate economic outlook remains stagnant is Japan. The authorities there said there was little chance of interest rates being increased.
The Bank of Japan’s governor, Haruhiko Kuroda, ruled out the possibility of raising interest rates in the near future. He said it was ‘inappropriate’ to do so with inflation still about half its 2 per cent target.
But markets in Asia typically follow the lead from the US.
Elsewhere in the region, Hong Kong’s Hang Seng dropped 4.5 per cent and South Korea’s Kospi index gave up 2.6 per cent. Australia’s benchmark S&P/ASX 200 lost 3.2 per cent.
On Monday the Dow Jones Industrial Average index tumbled 1,175 points, or 4.6 per cent to close down at 24,345.75.
The decline was the largest in percentage terms for the Dow since August 2011, when markets dropped in the aftermath of ‘Black Monday’ - the day Standard & Poor’s downgraded its credit rating of the US.
The drop on the Dow was closely followed by the wider S&P 500 stock index, down 4.1 per cent and the technology-heavy Nasdaq, which lost 3.7 per cent.
The White House moved to reassure investors saying it was focused on ‘long-term economic fundamentals, which remain exceptionally strong’.
Analysts say that in the short term, investors should be prepared for choppier stock markets.
Joel Prakken, chief US economist for IHS Markit, predicts share price gains will be limited over the next two years.
‘The difference between this year and last year is we’re going to see more periods of volatility like this as the market reacts to higher inflation,’ he said.
‘We’re just not used to it because it’s been so long since we’ve had a significant correction.’
However, he added that markets would need to deteriorate more significantly for him to start to worry about the broader economy.
Asian markets, on the other hand, have benefitted from record low US interest rates in the last decade because money has flowed into Asia in search of stronger returns. Analysts say the expected rate rises could impact Asia over the longer term.
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