Asia-Pacific Markets Tumble as US Retail Volatility Spooks Investors into Booking Profits

The major Asia-Pacific stock indexes were down across the board on Friday as many investors booked profits ahead of the weekend, with South Kospi leading losses among the region’s major markets.

A shift in risk sentiment was mostly responsible for today’s weak performance as investors expressed concerns over rising global coronavirus cases, a slower-than-expected vaccine rollout and uncertainty over the size and timing of President Biden’s stimulus package proposal.

Asian markets were spooked that a coordinated assault by small traders organizing over online forums to force U.S. hedge-funds to reverse short positions – which has led to sharp volatility in some stocks – could spill over into other markets.

Cash Market Performance

In Japan, the Nikkei 225 Index settled at 27663.39, down 534.03 or -1.89%. Hong Kong Hang Seng Index finished at 28283.71, down 267.06 or -0.94% and South Korea’s KOSPI Index closed at 2976.21, down 92.84 or -3.03%.

In China, the Shanghai Index settled at 3483.07, down 22.11 or -0.63% and Australia’s S&P/ASX 200 Index finished at 6607.40, down 42.30 or -0.64%.

South Korea Shares Drop as Foreigners Lead Profit Taking

South Korean shares fell for a fourth consecutive session on Friday on heavy profit-taking by foreign investors as Wall Street volatility from GameStop losses weighed on sentiment.

It was foreign-driven profit-taking, as some are getting cold-feet having seen how bad market volatilities can get in the U.S., said Lee Kyung-min, an analyst at Daishin Securities.

Asian retail investors, emboldened by the meteoric rise of U.S. videogame retailer GameStop, are taking on short sellers and making their brokers nervous enough to cut off margin lending.

Hong Kong Stocks Notch 4^th Monthly Gain on Record Mainland Demand

Hong Kong stocks ended lower on Friday, though the index posted its fourth consecutive monthly gain – the longest winning streak since early 2019 – as mainland buying hit a monthly record via the Stock Connect linking it and the Asian financial hub.

As of Thursday, mainland investors purchased net of around HK$300 billion ($38.70) worth of Hong Kong stocks via the Stock Connect, and their buying was set to hit a monthly record, according to the HKEX.

Nikkei Slumps on Month-End Selling, Fears Over Retail Volatility

Japanese shares tumbled for a second day on Friday, giving up early gains, as a boost from technology companies reporting upbeat earnings was overshadowed by investors’ profit-taking and rebalancing at the end of month.

Investors grew nervous about further market turbulences as retail trading frenzy boosts market volatility and talk of more position unwinding by damaged players.

The losses accelerated after Citron Research, a short-selling hedge fund caught in the short-squeezing of Gamestop shares, said it will make a major announcement later in the day.

Australian Shares End Lower on Mining Losses

Australian shares closed lower on Friday, dragged by mining stocks after Chinese iron ore futures slid, with the benchmark index posting its sharpest weekly loss since late October.

Miners closed 1.8% lower and clocked their worst week since March 13, 2020 with a 6.6% weekly drop. Demand worries dented Chinese iron ore futures in recent sessions after the commodity’s sharp rally towards the end of 2020.

Rio Tinto fell 3% and hit its lowest in two months, while rival BHP dropped 1.6%. Both companies enjoyed sharp share gains last year, benefiting from soaring prices of the commodity.

For a look at all of today’s economic events, check out our economic calendar.