Asian Stocks Fall As Risk Aversion Picks Up

A resurgence of concern about the health of the U.S. economy has pushed Asian stock markets sharply lower Monday as investors retreat to less risky assets.
The decrease in risk appetite has also shown up in a rising yen, and drops in several other Asian currencies. Gold, usually a safe-haven asset, has slipped as traders book profits in commodities, too.Bourses have made several attempts to come off their lows for the day, only to run into further selling. All indications are the declines will continue as U.S. markets open later Monday with Nasdaq 100 futures quoted 0.8% lower in screen trade and S&P 500 futures down 0.6%.The moves follow a selloff Friday in the U.S., after industrial equipment maker Caterpillar cautioned the U.S. economy will be "near to, or even in, recession," next year. That comment helped push the Dow Jones Industrial Average down 2.6%.That has raised fresh concerns about the ability of the U.S. economy to weather a housing slowdown, even if consumer sentiment indicators and the jobs market have held up fairly well. On that front, investors will have much to consider this week, in the form of data on U.S. home sales, durable goods orders and consumer sentiment."We anticipate little good news" wrote Marshall Gittler, chief Asian strategist at Deutsche Bank Private Wealth Management, in a note to clients.Rather, he expects to see evidence that the U.S. is slowing while Europe moderates and China remains strong. That is likely to keep stock markets volatile and the U.S. dollar weaker, "unless the data are bad enough to suggest another Fed rate cut," at the Federal Reserve's policy meeting next week.Expectations for a further cut in U.S. rates are high. November federal-funds futures at Friday's close in the U.S. were pricing in a 94% chance for the FOMC to cut rates to 4.5% at the Oct. 30-31 policy meeting, compared with the 70% chance priced in Thursday. At one stage Friday, the contract was fully priced for such a move."While we may not agree that another cut is appropriate, we doubt the Fed will risk not meeting market expectations," wrote Societe Generale Asian currency and rates strategist Patrick Bennett.Bennett argued that the selling in Asia is overdue."We have been concerned in Asia that recent strength has been too much too soon and in many cases has been unsupported by stable long-term inflows," he wrote.Among bourses, Korea's Kospi Composite was off 4% to 1,892, Japan's Nikkei 225 Index down 3.2% to 16,277, and Hong Kong's Hang Seng Index was off 3.2% to 28536, and the Straits Times Index in Singapore was off 2.6% to 3,651.The S&P/ASX 200 index in Australia was down 2.3% to 6,551.30, and in China the Shanghai Composite fell a further 2.3% to 5,684.In Japan, export-related shares were predictably weak on the stronger yen, with Sony Corp. (6758.TO) down 1.9% at Y5220, and Sharp Corp. (6753.TO) down 4.2% to Y1823.In Korea, big-cap stocks were leading the market lower as foreign investors sold, with Samsung Electronics (005930.SE) down 3.1% at KRW523,000, Posco (005490.SE) down 3.3% at KRW584,000 and Hyundai Heavy (009540.SE) off 4.6% at KRW437,000.Adding to negative sentiment was the anniversary of Black Monday: The October 19, 1987 U.S. market crash which saw the DJIA sink 508.32 points for a record percentage loss. "Investor psychology will be very nervous about the prospect of another Black Monday," said RBC Capital Markets, adding "crude oil hovering just under 90 dollars a barrel won't help."Barclays Capital chief JGB strategist Masuhisa Kobayashi said "this situation could compare with August" - when stocks dropped and bonds rallied around the globe at the height of the U.S. subprime mortgage-related credit crisis.