Volatility returned with a vengeance to Asia, home to some of the best stock-market returns in the world this year before Monday.
The MSCI Asia Pacific Index slumped 2.1 percent on Monday, heading for its biggest decline since October and erasing monthly gains. Shares in China, Hong Kong and Japan lost 2 percent or more, with S&P 500 Index futures dropping as much as 0.7 percent.
That’s pushed indexes of equity swings to jumps not yet seen this year. The Nikkei Stock Average Volatility Index soared as much as 31 percent, with similar gauges for Hong Kong, South Korea and Australia also surging.
The spiking volatility indicators herald a rude awakening for traders that had been lulled into complacency as equities around the world rallied through much of the first quarter.
The Shanghai Composite Index, the world’s worst-performing major stock gauge in 2018 with a 25 percent loss, pulled an almost complete 180 with a 24 percent rally this year through Friday.
Optimism of a tidy resolution on the U.S.-China trade negotiations and more dovish overtures from the Federal Reserve helped keep investors buying, while in Asia a resurgence of technology shares served as the largest drivers for gains to this point.
Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. joined a rebound in global chipmakers, while Tencent Holdings Ltd., the biggest component of the regional benchmark, bounced back from its worst-ever annual loss last year.
But all along, concerns over the strength of the economic expansion have been lingering. Comments last week from Fed Chair Jerome Powell indicating the central bank planned to hold off on interest-rate increases this year, which seemingly confirmed the dovish stance that helped stoke the rally, raised fears of a U.S. slowdown.
Those worries only worsened on Friday, when manufacturing indicators in Europe and the U.S. proved poor and the Treasury yield curve inverted for the first time since 2007. Bond yields pushing lower from Japan to Germany — Australia’s 10-year benchmark rate hit a record low Monday — are creating a fresh feedback loop of investor concern over growth, if not outright recession.
“I’ve repeatedly stated that bond markets globally, along with dovish central banks, have been telling us a slowdown is on the way,” said Jeffrey Halley, senior market strategist with Oanda in Singapore.
“The U.S. can at least cut rates and apply monetary tools. Things could be worse for Europe and Japan, where they cannot. Until the U.S.-China trade talks conclude for better or worse, it’s too soon to predict how deep the coming slowdown will be or even when it will occur.”
The MSCI Asia Pacific Index, which was up 1.7 percent for March through Friday, is now heading for a 0.4 percent monthly decline, its first since December.
• MSCI Asia Pacific Index down 2%
• Japan’s Topix index down 2.5%; Nikkei 225 down 3%
• Hong Kong’s Hang Seng Index down 2%; Hang Seng China Enterprises down 2.5%; Shanghai Composite down 2%; CSI 300 down 2.4%
• Taiwan’s Taiex index down 1.5%
• South Korea’s Kospi index down 1.9%; Kospi 200 down 2%
• Australia’s S&P/ASX 200 down 1.1%; New Zealand’s S&P/NZX 50 down 0.3%
• India’s S&P BSE Sensex Index down 1.2%; NSE Nifty 50 down 1.1%
• Singapore’s Straits Times Index down 1.1%; Malaysia’s KLCI down 1.1%; Philippine Stock Exchange Index down 1.9%; Jakarta Composite down 1.9%; Thailand’s SET down 1.6%; Vietnam’s VN Index down 1.9%
• S&P 500 e-mini futures down 0.4% after index closed down 1.9% in last session