ASIAN stocks took another beating on Thursday after US stocks fell on Wednesday night. Hong Kong's Hang Seng Index fell below book value for the first time since the Asian financial crisis; China's Shanghai Composite fell through the 2,900-point barrier.
Observers say forced selling by oil producers' sovereign wealth funds, along with unwinding of various trades, could be behind the continuous bleeding.
However, the nub of the matter is more a lack of confidence than a looming recession, some say. Low oil prices should be a boon, not a bane.
A note from institutional asset manager Principal Global Investors said: "While investors are focused on disruption from potential defaults by energy and materials companies, they are missing the huge boost to household income around the world from lower energy and food bills.
Businesses are also getting the bonanza: airline profits soaring, lower costs for chemical manufacturers, trucking companies getting a raise, and homebuyers paying less for copper."
Noted debt investor Howard Marks, co-chairman of alternative investment firm Oaktree Capital Management, wrote a memo to clients on Tuesday, urging them not to be unduly influenced by market swings.
Declining asset prices made people feel poorer and spend and invest less, he said, but "I still would say US and European economic fundamentals aren't negative on balance".
"The market has no special insight and conveys no consistently helpful message. It's not that it's always wrong; it's that there's no reason to presume it's right," he said.
A veteran fund manager who manages more than US$1 billion(S$1.4 billion) told The Business Times that Hong Kong, to which he is exposed, is "definitely cheap".
He is picking up consumer stocks. "At the end of the day, whatever happens, people spend. But you got to look at balance sheets," he said. He mused that structural forces are hindering consumer and business confidence.
The Chinese are not spending due to the anti-corruption drive, while American savings rates are going up.
Globalisation, income inequality and disruptive technological forces are dampening demand, he said. In retail, wealth is being transferred to a few dominant e-commerce firms.
"Wealth is more and more accumulated in the hands of a few rich.
The masses, the poor people who need the money, don't get it."
In Asia on Thursday, stock markets in Japan, China and Hong Kong suffered the biggest falls.
In Japan, car exporters Toyota and Honda led the benchmark Topix index down 2.8 per cent. The strengthening yen against the US dollar threatens to lower corporate profits.
In China, oil-and-gas producer PetroChina fell to a historic low on Shanghai's A-share market.
Brent crude traded below US$28 a barrel. In Hong Kong, the Hang Seng Index's 1.8 per cent fall was led by HSBC Bank, Tencent and Ping An Insurance.
The Hong Kong dollar traded at HK$7.81(S$14) against the US dollar after hitting a high of almost HK$7.83. The benchmark three-month Hibor interest rate continued to rise, fixed at 0.63 per cent on Thursday.
Rising interest rates signal tighter liquidity conditions and lead to pricier mortgages.
Hong Kong property shares are slumping even as analysts expect the city's inflated residential property prices to fall by double-digit percentages in the next two years.
Analysts at Bank of America Merrill Lynch (BOAML) said in a Thursday note that the Hong Kong dollar might trade at HK$7.85 against the US dollar for the rest of the year, at its weakest point allowable by the city's longstanding peg to the US dollar.
The selling pressure on the Hong Kong dollar reflects anxiety over the city's exposure to China, BOAML said.
While Hong Kong banks are more exposed to China, regulators have worked hard to mitigate risks through higher capital requirements and macroprudential measures, the bank said.
But compared to the Asian financial crisis when the three-month Hibor hit 15 per cent in 1998, things can get far worse, its analysts warned.
"Nearly 19 years on, and the proximity of the risk and the closer integration between China and Hong Kong means the channels are potentially bigger and more direct."
Financial risks aside, analysts still put their faith in the Chinese consumer.
A Thursday HSBC report argued that sales in the luxury goods sector will grow 6 per cent this year, against 3 to 4 per cent last year.
In Singapore, research house NRA Capital's executive chairman Kevin Scully, bearish since 2014, has a list of local blue chips to buy.
"Don't panic, it's not as bad as 2008," he said in a blog post. His shopping list includes Keppel (S$3.90), DBS (S$12), OCBC (S$6), UOB (S$15), Singtel (S$3) and SingPost (S$1.50).
This article was first published on January 22, 2016.
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