US stock rout hits Asia hard, erases Nikkei's 2018 gains

The weekend did little to cushion the blow of the biggest US stock rout in two years, with Asian equities facing a barrage of selling as Monday trading got under way.


Japan bore the brunt of the declines, with Nikkei 225 Stock Average erasing this year’s gain, while a measure of its volatility surged to the highest since November. US equity futures sank as much as 1.1 per cent in Asia on Monday but by 7:35 am in London March e-mini contracts on the S&P 500 Index had pared losses to 0.1 per cent.


The MSCI Asia Pacific Index slid 1.4 per cent, retreating from a rally that has sent equities to overbought levels for most of January.


Bearish sentiment wiped out the year-to-date gain of Japan’s Nikkei 225 Stock Average. The gauge retreated below a 76.4 percent-retracement point from a high in January 2018 to a low in April 2017. Its next key Fibonacci-retracement level stands at 21,873.76. The Nikkei closed 2.6 per cent lower to 22,682.08, while the Topix declined 2.2 per cent to 1,823.74.


The Nikkei 225 also dropped below its 75-day moving average line, breaching a “strong support” level, said Yoshihiro Ito, chief strategist at Okasan Online Securities Co in Tokyo. The plunge signals a “prolonged” correction, he said.


Technology stocks, which helped fuel much of the rally in stocks around the world last year, were among the chief culprits of Monday’s sell-off. The MSCI Asia Pacific Information Technology Index dropped as much as 2.5 per cent, set for its worst one-day slide since November 2016, as Tencent Holdings, Taiwan Semiconductor Manufacturing and Keyence Corp — all weighed on the gauge.


It is not all doom and gloom for investors in the region with Sony Corp, one of the few winners on the day, climbing 1.5 per cent to the highest close in two weeks. The electronics giant extended gains a fourth day after boosting its annual profit forecast to a record Friday amid strong profits in its music division and better sales of high-end TVs.


Even as volatility gauges spiked throughout the region, volatility levels still remained near multi-year lows compared to its historical chart, signaling that investors may still be able to stomach the swings in the market. The 30-day volatility gauge for the MSCI Asia Pacific gauge rose to the highest level in a year amid concern over surging US Treasury yields.


The MSCI Asia Pacific Index remains well above its trend line, suggesting its bullish trend may still be intact. Recent losses come after index stayed overbought for most of last month, according to the relative strength index.