Capital flows back West as liquidity tightens
Asian stocks tumbled broadly as liquidity fears gripped the markets, creating an atmosphere of subdued trade ahead of the June FOMC meeting minutes. The FOMC minutes are expected to shed light on the US Federal Reserve’s timeline for stimulus reduction, which according to Wall Street, will begin in earnest in September. On the heels of consecutive weekly declines on Wall Street, investors have already begun pulling billions of dollars from emerging markets in an attempt to hedge their bets against a Fed bond taper. Asia’s role as emerging global powerhouse is waning as nascent recoveries in the United States and Europe have swung the pendulum in the opposite direction.
Japan’s benchmark NIKKEI declined more than 2.6 percent to 13,393.40 as US markets continue to deteriorate. Last week the Dow Jones Industrial Average suffered its worst retreat in 14 months as Federal Reserve speculation gripped the markets. Hong Kong shares fell in-line with regional sell-offs, with the benchmark Hang Seng index losing more than 2.2 percent to 21,970.30.
Exacerbating Asia’s woes is a broad slowdown in China, which has not only reduced demand for emerging market stocks, but reduced demand for commodities. Signs of a China slowdown first appeared in April when the world’s second largest economy reported less robust first quarter growth, which triggered the first mass commodity selloff of 2013. The International Monetary Fund has kept pace with developing Asia’s struggles, cutting the region’s growth forecast by 0.3 percentage points to 6.9 percent
Asia’s weakness isn’t limited to the Pacific. India is in the midst of its worst currency crisis in over two decades. The Indian rupee has declined more than 3 percent over the past five days, as the nation of 1.2 billion continues to struggle with a massive trade deficit. India’s benchmark Mumbai Sunsex declined another 0.34 percent Tuesday to 18,246.04.
US stocks managed to rebound Tuesday, which may stop the bleeding momentarily. However, it is clear the dark clouds that hovered over the US and Europe four years ago have migrated to Asia.
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