Asian Stocks Fall on Lingering Korea Tensions

Asian stocks sank, reversing earlier gains, and South Korea’s won fell as concern about tensions on the Korean peninsula kept investors on edge.

Equity measures from Seoul to Hong Kong and Shanghai dropped at least 1 percent and U.S. index futures declined, as the won led emerging-market currencies lower. Stock volatility increased and the yen climbed. Other haven assets held near levels from the close on Wednesday, when comments by U.S. government officials helped ease concern the country was headed for armed conflict with North Korea. South Korea’s military warned Pyongyang on Thursday that it would face a strong response if it carried through with a threat to launch a missile toward the U.S. territory of Guam.

Geopolitical tensions may be the trigger for the latest bout of risk aversion, but with global equities trading near record highs and yield premiums on high-yield debt creeping up, some of the biggest names in the asset management industry have already been warning that it’s time to take risk off the table. Pimco told investors to pare U.S. equities and junk bonds, but keep exposure to real assets, such as inflation-linked debt, commodities and gold. T. Rowe Price cut its stock allocation to the lowest level since 2000. Recent weakness in U.S. junk-bond prices may be the beginning of a correction for the securities, and investors should consider betting against the market, Morgan Stanley strategists recommended.

Investors are also awaiting for more clues on the implications for monetary policy and U.S. economic growth with a speech by Fed Bank of New York President William Dudley due ahead of Friday’s inflation data. Chicago Fed President Charles Evans said it would be “reasonable” to announce the beginning of a reduction of the central bank’s balance sheet next month, while cautioning that disappointing inflation data may delay interest-rate increases as technological disruption dampens price pressures.

Here are the main moves in markets:

Stocks

· Japan’s Topix index fell 0.2 percent, while South Korea’s Kospi index slid 1 percent, adding to a 1.1 percent drop on Wednesday. The Hang Seng Index in Hong Kong tumbled 1.6 percent, Taiwan’s Taiex index lost 1.4 percent and the Shanghai Composite Index dropped 1.1 percent.

· Australia’s S&P/ASX 200 Index lost 0.1 percent.

· The MSCI Asia Pacific Index fell 0.7 percent and was on track for its biggest two-day decline since March.

· Futures on the S&P 500 Index fell 0.2 percent as of 1:49 p.m. in Tokyo. The underlying gauge closed less than 0.1 percent lower, all but erasing losses of as much as 0.5 percent. Treasuries pared gains and U.S. equities recouped declines in the final hour of trading.

Currencies

· The won dropped 0.8 percent to 1,143.80, while the yen rose 0.1 percent to 109.98. The Australian dollar fell 0.1 percent to 78.77.

· The euro fell 0.2 percent to $1.1737 and the Bloomberg Dollar Spot Index was up 0.1 percent.

· The kiwi dollar lost 0.4 percent to 73.06 U.S. cents. It erased gains of as much as 0.5 percent after Governor Graeme Wheeler said the Reserve Bank of New Zealand would like to see a weaker exchange rate and FX intervention is always open to the central bank.

Bonds

· The yield on 10-year Treasuries traded at 2.24 percent.

· Australia’s 10-year bond yield was up one basis point to 2.65 percent.

· Germany’s 10-year bund yield declined four basis points to 0.43 percent on Wednesday.

Commodities

· Gold was little changed at $1,276.91 an ounce after falling as much as 0.2 percent. It surged 1.3 percent on Wednesday.

· West Texas Intermediate crude was little changed at $49.54 a barrel after climbing 0.8 percent the previous session. U.S. production eased and crude inventories extended declines, trimming a glut.

Source: Bloomberg

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