Japan's Nikkei Crash 4.84%, Hong Kong's HSI Plummets 1.22% and Korea's Kosdaq Halted After 8% Crash!

Woe to Japan's pensioners. Continuing stock market losses might just bleed Japan's Government Pension Investment Fund (GPIF) dry. The GPIF had been pressured by the Abe administration in 2014 to makeover its portfolio by increasing its exposure in the stock markets (domestic and global). Now stock market losses have been mounting.

It has been a brutal week for the Japanese stock market. Today, the Nikkei 225 suffered another 4.84% crash! Today's slump marks the third consecutive day of heavy losses for the key benchmark this week.

From Bloomberg:

Stocks plummeted in Tokyo, with the Topix index posting its biggest weekly loss since 2008, as global equities plunged into a bear market and the yen rose to its highest level in 15 months.

The Topix sank 5.4 percent to 1,196.28 at the close in Tokyo as trading resumed after a holiday, capping a 13 percent weekly decline. The Nikkei 225 Stock Average fell 4.8 percent to 14,952.61. The yen traded at 112.45 per dollar after touching 110.99 on Thursday, the strongest level since Oct. 31, 2014, when the Bank of Japan eased policy.

“We’ve entered a different phase in the market,” Juichi Wako, a senior strategist at Nomura Holdings Inc. in Tokyo, said by phone. “Dollar-yen movements are at the center as it is now the foreign-exchange market that is in the driver’s seat. We’re at the mercy of how currencies move.”

The currency’s surge is intensifying speculation the BOJ may intervene to arrest gains that threaten to undermine almost three years of monetary stimulus. Finance Minister Taro Aso said Friday the government is watching market movements and will take any action necessary. Following a regular meeting with Prime Minister Shinzo Abe, BOJ Governor Haruhiko Kuroda said he also would watch market moves closely.

Part of the crash has been due to margin calls...

Investors said this week’s declines to below key levels have triggered margin calls among retail traders in Japan, who are being automatically forced to close souring bets. That’s adding to the selling pressure, according to Miki Securities Co.

The Nikkei 225 hemorrhaged a stunning 11.1% in a holiday abbreviated week.

Curiously,  this week's string of losses has brought the Nikkei back lower than when the Abenomics 2.0 was launched in 4Q of 2014. 

So the Abenomics stock market bubble has almost entirely been erased! This should be another wonderful example of the proportionality of bursting bubbles. Or as I previously noted, the bust will be roughly proportional to the imbalances acquired during the inflationary boom. 

And if the GPIF pushed the stocks all the way to the recent top, then today's downside breach of the 15,000 level must translate to heavy losses for the fund.

Well, most of Asian bourses have been under the spell of bears

Yesterday I noted that Hong Kong's Hang Seng index greeted the year of the Monkey (really year of the bears) with a selloff.  A follow thru session was seen today.

From Bloomberg

The Hang Seng Index lost 1.2 percent to 18,319.58, its lowest close since June 2012. HSBC was the biggest drag, capping a 8.1 percent two-day drop, amid concern over the perceived creditworthiness of European banks. Tencent Holdings Ltd., which has the largest weighting on the index, sank 1.9 percent. Hong Kong stocks have lost almost $2 trillion in market value from an April peak, data compiled by Bloomberg show, while a measure of equities around the world fell into a bear market this week.

“Global sentiment isn’t that great and with the world conditions worsening, the Hong Kong market will tag along with that downtrend," said Jackson Wong, associate director at Huarong International Securities Ltd. in Hong Kong. “We didn’t see any panic selling, but we don’t have any extremely positive catalyst to push up the stock market."

Hong Kong stocks extended their worst start to a lunar new year since 1994 as a global equity slump compounded concern that capital outflows, a slumping property market and China’s economic slowdown will hurt earnings. The Hang Seng Index has tumbled 16 percent this year, while the Hang Seng China Enterprises Index is trading at its lowest level since March 2009. Mainland markets resume trading on Monday after a week-long break.

The Hang Seng index fell 5.02% in a holiday truncated trading week.

This week's selloff in Hong Kong's equities maybe a bad omen for the resumption of trading activities in mainland China next week. Will stocks of mainland China crash too? Or will the national team will be active next week to prevent this?

And another noteworthy event today has been the crash of Korea's small cap index the Kosdaq, which prompted for a trading halt.

From Bloomberg:

Trading in South Korea’s Kosdaq exchange for smaller stocks was temporarily halted after the benchmark gauge plunged more than 8 percent on concern valuations were excessive relative to earnings prospects.

Trading was suspended for 20 minutes at 11:55 a.m. in Seoul after the measure dropped 8.2 percent. The index pared declines to 6.1 percent at the close. Celltrion Inc. was the biggest drag on the small-cap measure after the stock almost tripled in the past 12 months. The Kospi gauge of larger companies closed at its lowest level since August.

The Kosdaq index of more than 1,100 companies jumped 26 percent to outperform the large-cap gauge last year as investors piled into biotech shares and other smaller companies in search of earnings growth as smokestack industries stagnated. Celltrion, which developed an arthritis medicine, trades at 42 times projected 12 month profits, four times the Kospi’s 10.5 times.

Investors are selling small-cap stocks as they look for havens amid the global market turmoil, said Choi Kwang Kook, a senior fund manager at Assetplus Investment Management in Seoul.

World equities entered a bear market on Thursday amid concern over the strength of the global economy, while the yen and gold rallied. Korean markets were closed for the first three days of this week for holidays. Today’s 8.2 percent intraday decline by the Kosdaq is the biggest since December 2011.

The Kosdaq closed down by still a huge 6.06% today! 

Nonetheless, Korea's major benchmark the Kospi was spared of the carnage and was down by just 1.41% for the day and 4.3% for the week.

As noted in the report above, bears have now gained control of the world markets. 

For this week, ASEAN majors were spared from the bloodletting suffered by other regional peers. 

Will China's resumption of trading next week induce a uniformity of actions?

Japan’s Stock Market Crashes 5.4%! Yen Surges! 10 Year JGBs Turn Negative!

I noted last weekend that global central bankers have lost control of stock markets, in spite of recently imposed central bank measures, as well as, promises for more "easing" policies.

I said that “financial markets have apparently grown weary of these central bank elixirs!”

I pointed out how Japan’s stocks, which have been a prime target for NIRP subsidies, has reversed on its early gains. This means that the BoJ's NIRP policy has essentially backfired. 

Well, it appears that my observation had been reinforced today as Japan's major equity bellwether Nikkei 225 crashed 5.4%

From Bloomberg: (bold mine)

Japanese stocks plunged amid a global equity selloff as the yen surged to the highest level against the dollar in more than a year, while financial companies plummeted on growing global unease over profitability and credit quality.

The Topix index sank 5.5 percent to 1,304.33, closing in Tokyo with the largest decline since August. Brokerages and banks led the rout as all of the gauge’s 33 industry groups fell. The Nikkei 225 Stock Average lost 5.4 percent to 16,085.44, its biggest drop since June 2013. The yen surged 1 percent to 114.75 per dollar, the strongest level since November 2014.

“We had a bubble in people’s expectations of the power of central banks. And now we’re seeing that bubble burst,” said Soichiro Monji, chief strategist at Tokyo-based Daiwa SB Investments Ltd. in Tokyo. “Investors are pricing in the fact that central banks can no longer control markets. That became apparent after the Bank of Japan’s last stimulus, and now a similar view is strengthening about the ECB.”

Now even the mainstream admits to the BoJ's failure!

The BoJ’s NIRP was likewise intended to weaken the yen in order to ignite inflation. Well, much to the BoJ's dismay, the Japanese yen has been surging today.

From the same article

Japan’s currency has strengthened against the dollar despite diverging policies taken by each nation’s central bank, with the Bank of Japan last month introducing negative interest rates while the Federal Reserve raised borrowing costs in December and signaled more increases this year. Slowing global growth has pared back trader expectations for at least one U.S. rate hike this year to 30 percent, down from 93 percent at the end of 2015

Another spillover from the BoJ’s NIRP has been to spread negative rates or bond yields to now cover 10 year JGBs

From the same report

Japan’s benchmark 10-year government bond yields dropped below zero for the first time, underscoring the challenge for banks to make money from lending in the world’s third-largest economy. It fell 7 1/2 basis points to a record minus 0.035 percent as of 3:05 p.m. in Tokyo.

Today’s stock market crash was led by banks.

The Topix bank index crashed by a shocking 8.18%!

Also today’s crash basically wiped out the ECB inspired the 5.9% monster rally and has brought the Nikkei back to January 21 lows. 

As I noted then, the fiery rally was nothing more than a dead cat's bounce.

Yet intensifying signs of the reemergence of a global financial crisis can be seen via soaring credit risk.

As another Bloomberg article notes:

Credit markets are grappling with a global selloff that’s sending the cost to protect against company defaults to the highest level in almost four years as investors become increasingly nervous that global growth is slowing.

In the U.S., the risk premium on the Markit CDX North America Investment Grade Index, a credit-default swaps benchmark tied to the debt of 125 investment-grade companies, jumped six basis points to about 120 basis points at 4:02 p.m. in New York, the highest since June 2012. A similar measure for borrowers in Europe jumped to the highest level since June 2013...

Banks and insurers in Europe led a surge in the cost of insuring corporate bonds to the highest levels since 2013.

The Markit iTraxx Europe Subordinated Financial index of credit-default swaps on the junior debt of 30 firms soared for an eighth day, rising 47 basis points to 312 basis points, the highest since March 2013, according to data compiled by Bloomberg. The senior benchmark jumped 18 basis points to 137 basis points, while a measure of U.S. corporate bond risk rose four basis points to 119 basis points, the highest since June 2012...

 

All these reveal to us why bear markets dynamics have been spreading, and intensifying. And if the current momentum will be sustained, then we should the same bubble bursting dynamics in the global financial markets to percolate to the real economy.

 The obverse side of every mania is a crash!

US Stock Market Rally Fizzles as the Fed Backpedals from Hawkishness; Implicit Admission of Policy Error?

I wrote last weekend that because of government support (magic from the central bank put) plus oversold conditions this week should be a big moment for the bulls.

Well, the  US FOMC meeting just concluded, and the reaction by US stocks hasn't been lively.

Here's what mainstream media had to say of the Fed meeting (Wall Street Journal):

The Federal Reserve signaled renewed worry about financial-market turbulence and slow overseas economic growth but was noncommittal on whether these threats would throw its interest-rate plans off course.

The U.S. central bank raised short-term interest rates by a quarter percentage point in December and has penciled in four more quarter-percentage-point rate increases this year, the next one possibly as soon as March.

A policy statement released by the Fed after a two-day meeting raised new doubts about whether it would follow through with a rate move in March. Futures markets place just a 25% probability on rate increase by then. But the central bank sought to keep all of its options open while it assesses a potentially shifting economic landscape.

The changes in the Fed statement as shown by the Wall Street Journal. 

So in echoing the Fed's concerns prior to the December rate hike, the FED backtracked to use global anxieties to convey their supposed 'openness' or a seismic shift from hawkish stance to neutral. Might I say admission of policy error?

And here is how US stocks reacted (above table from stockcharts.com). 

Not even the 5.4% surge in oil prices helped mitigate yesterday's activities. Today's losses only eroded much of the gains acquired for the week, which leaves US stocks still drifting near January lows.

So far my big moment for the bulls have been divergent.

Chinese stocks have failed to live by the government hype where the latter would intervene to fight off speculators for the benefit of  investors.

Oh yes, the Chinese government was all over yesterday afternoon to help stanch what would have been another blood bath...

The Shanghai index plunged to a depth of 3.8% post lunch, where the Chinese National Team went on a furious pump. 

Unfortunately, the Chinese government had been unable to hold on to the slight gains from their interventions, to close the day still down. This marks the biggest two day loss since August.

So far Europe's gains have been modest, and it's been Japanese stocks that has seen quite a big bounce (aside from the Philippine Phisix) as Japan's gamblers awaits the outlook from Bank of Japan's meeting on Friday. 

Will the BoJ expand easing?

So far central bank magic have hardly provided a meaningful boost to global stocks. Yet what happens when the magic fades?

Two days left for the big moment.

Dead Cat's Bounce: Embattled Bulls Push Back Bears on Central Bank Stimulus Hope: Japan Nikkei Soars 5.9% Leads Asia

As always, bulls will not let the bears dominate without a fight. 

So on the back of speculation of political support, Japan's Nikkei 225 roared by an incredible 5.88% to push the bears back today...

Here is a sample of how media sees today's massive stock market rally in Japan

From Bloomberg (bold mine)

Japanese stocks surged by the most in four months as investors weighed prospects for central bank stimulus and bought back into a bear market to cover short positions.

The Topix index jumped 5.6 percent to 1,374.19 at the close in Tokyo, the most since Sept. 9 and paring its worst monthly loss since October 2008. The Nikkei 225 Stock Average soared 5.9 percent to 16,958.53, also supported by a report the Bank of Japan is considering extra monetary easing. Global equities halted losses on the brink of a bear market as oil rallied and the European Central Bank signaled it may boost stimulus.

“We’re seeing short squeeze galore,” said Mikey Hsia, a trader at Sunrise Brokers LLP in Hong Kong. “Much of this is technical. Japan has had big moves for three days in a row now -- it’s becoming common.”

The monster rally has not been limited to Japan, as most of Asia closed significantly higher (as shown above). But it was Japan's equities that stole the show.

Meanwhile, Europe's stocks has likewise been strong.

From another Bloomberg report (bold added)

Stocks rose around the world, extending Thursday’s rebound from a 2 1/2-year low, on speculation that central banks will expand stimulus measures to counter turmoil in financial markets. Oil surged with emerging-market currencies, while haven assets retreated.

European shares headed for the best week in two months, the euro approached a two-week low and Spanish and Italian bonds rallied after European Central Bank President Mario Draghi indicated he may bolster economic support as soon as March. Crude was poised for its steepest two-day rally in five months and the Russian ruble rebounded from a record low. Asian stocks climbed the most since September on speculation Japan and China may also take steps to calm markets.

The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash. Diminished inflation expectations and a strengthening yen are seen as increasing pressure on the Bank of Japan to enlarge stimulus at its meeting next week. China will keep intervening in its equity market to “look after” investors and has no intention of further devaluing the yuan, Vice President Li Yuanchao said.

“It’s a classic oversold bounce after Draghi’s comments yesterday and the noise on Japanese stimulus overnight, the question is where do we go from here,” said Veronika Pechlaner, who helps oversee $10 billion at Ashburton Investments, part of FirstRand Group. “It’s become harder and harder for stimulus to really support the economic fundamentals so it doesn’t mean a medium- and long-term change, but at least we have a bit more stable trading environment for a couple of days.”

Emerging market currencies like Philippine peso has likewise rebounded considerably due to the Pavlovian effect on the prospective central bank stimulus.

From the Businessworld,

HIGHER-yielding emerging market currencies rose against the dollar in Asia on Friday, after a jump in crude prices and hints the ECB could unleash more stimulus helped cheer traders.

The South Korean won and the Malaysian ringgit were among top gainers, after taking a battering over concerns of slowing global economic growth, the impact of a US rate rise and a slump in oil to below $30 a barrel.

European Central Bank chief Mario Draghi helped contain the pessimism clouding markets on Thursday when he said the eurozone central bank would "review and possibly reconsider" its monetary policy in March.

Now back to the Nikkei. Last September 9, 2015, the Nikkei made a titanic 7.7% rally which was much bigger than today

I showed this

And with the above, I pointed out the following: (bold added)

Of the 9 incidences (excluding today’s fantastic rip) only two 1,000+ points rally represented a tailwind for a continuing run-up. That was in 1987 and in 1988.

For a terse background, Japan’s Nikkei topped in December 29, 1989. This was then followed by a horrific more-than-a-decade long crash.

The next 6 one day sprints were all bear market bounces!

In sum, all eight giant one day spurts occurred during the Nikkei’s boom-bust cycle with a bias for bear market bounces. Most of them transpired during the climax or during the transition from boom to bust.

While the October 2008’s big move was followed by a 38% rally, it hardly brought a major bullmarket. It was in the late 2012, or four years after, when a resurgence of a quasi bullmarket occurred—mostly due to ABENOMICS.

As part of the Abenomics program, the Bank of Japan (BoJ) has been mandated to include stocks (ETFs) in her large scale asset purchasing program. In November 2014, Japan’s pension fund, the GPIF, was also enlisted to participate in the asset shift favoring stocks.

This means that whatever bull market Japanese stocks have recently experienced have been mainly owed to the BoJ and to the GPIF. Or said differently, without the BoJ and GPIF, today's bullmarket may not have existed.

Perhaps even today's blitzkrieg may have been inspired by these institutions.

The point is, today’s run hardly guarantees of a reversal in favor of the bulls.

If today should serve as a tailwind for an upside momentum, then probably like 1987-8 it could mark a near climax for the bullmarket.

Now the above represents the updated chart (including today's 5.9% rip)

The level when the bulls made the 7.7% September 2015 charge has been much higher than today. This means that the one day 7.7% ramp hardly inspired a sustained run.

So what the above has signified have been the following: 

One the Abenomics 2.0 stock market run has been fading. And the ramification has been outsized volatility characterized by huge price swings. 

Second, big moves like today resonate on 1987 to 1992. 

Third, take a look at the recent actions, the Nikkei has just collapsed. And since no trend goes in a straight line, today's 5.88% jump represented a natural reflexive reaction from a severe drop. 

Fourth,  experts quoted by media sees them too, "short squeeze" and "oversold bounce" equates to a dead cat's bounce or a sucker's rally

All these seem to indicate that Japan's bear market has just taken a pause.

Asian Bears Maul China’s Shanghai, Japan’s Nikkei and the Philippine PSEi!

Rampaging bears continue to wreak havoc on a growing number of Asian equities

Chinese stocks represented by the Shanghai index went into a wild intraday rollercoaster ride before succumbing to the bears. The Shanghai index sank 3.23%

Yet one of the biggest cash injections in three years by the central bank today has only had a momentary effect. This failed to stop bears from dominating the day's session.

From Bloomberg

Chinese stocks tumbled as the central bank’s biggest cash injection in the financial system in three years failed to ease concern that the nation’s economic slowdown will deepen.

The Shanghai Composite Index slid 3.2 percent to 2,880.48 at the close. Hong Kong’s Hang Seng China Enterprises dropped 2.2 percent to the lowest level since March 2009. Hong Kong stocks fell below the value of their net assets for the first time since 1998. Property developers led declines on concern higher borrowing costs will crimp earnings after the three-month Hong Kong Inter-Bank Offered Rate climbed to the highest level in more than six years.

China cranked up cash injections in its money-market operations after a gauge of interbank funding availability in the mainland jumped the most in 13 months on Wednesday. The government is trying to hold borrowing costs down to support its economy without spurring an exodus of funds that drove the yuan to a five-year low this month. The People’s Bank of China said Thursday it conducted 110 billion yuan ($16.7 billion) of seven-day reverse-repurchase agreements and 290 billion yuan of 28-day contracts.

Part of the reason for today’s loss may likely be due to the ascent by the USD CNH.

Today’s loss essentially erased the 3% jump predicated on the bad news (lower GDP) equals good news (MORRREEE stimulus) last Tuesday. Today's loss dragged the Shanghai index to its lowest level since December 2014.

Meanwhile, Japan’s benchmark, the Nikkei's entry to the bear market yesterday was followed up today by another selling spree.

Like China's Shanghai, the Nikkei 225 had a tumultuous intraday action. The Nikkei soared at the early going, to reach almost 2%, and unfortunately in seeming coincidence with the Shanghai, plunged towards the close.

The Nikkei has now fallen to late 2014 levels.

Asian equities were mostly red today as shown by the Reuters monitor

Among emerging Asia, the Philippine PSEi suffered the largest drubbing; down 2.8%.

Since the record high last April 2015, as of today the PSEi has shed a remarkable 25.14%! The PSEi seems to be having a China's Shanghai index moment.

One Philippine official indirectly blames 'irrationality' to the ferocious bear market activities. He stated that current actions “did not arise from a careful evaluation of corporate returns”, so he concludes that "Eventually, investors will begin differentiating emerging economies as the dust of uncertainty settles down"

Stock markets are supposed to work as forward discounting mechanism, so whatever G-R-O-W-T-H that had happened in the past may not be the future—which is what the current bear market seems all about.

Yet today's performance, as indicated on the table above, already suggests that markets have been differentiating. Unfortunately, they are pointing to the opposite direction than the one suggested by the official. 

Of course, the official’s perspective could most likely be the sentiment of establishment consensus.

Oh by the way, I forgot to add another Asian bear market recruit: as of yesterday, Taiwan's equity benchmark, the TWSE, enlisted to became a member. 

The entry to the bear market by the TWSE suggest that there won't likely be a post election honeymoon for first female president Tsai Ing-wen, who represented the opposition and won by a landslide last weekend.

Japanese Equity Benchmarks Nikkei and Topix Tanks 3.7%, Barges into Bear Markets

The Grizzly Bears have enlisted new recruits today. 

The Nikkei 225 and Topix slumped by 3.7% each. This means that the major Japanese benchmarks have fallen into the bear's dominion

More signs that 2015's legacy of stock market crashes have been spreading, converging and accelerating--which may become the dominant landscape for 2016 

Again, decoupling anyone?

Chinese Stocks Greets 2016 with a Bang: 7% Crash that Triggered Trading Halts! Japan's Nikkei Dives 3%!

Baptism of fire it has been for the opening sessions of several key stock markets in 2016.

Unfortunately, instead of fireworks to celebrate 2016, Chinese stock markets greeted the New Year with a shocking 7% crash that prompted for a trading halt!

The Bloomberg reports:

China halted trading in stocks, futures and options after a selloff triggered circuit breakers designed to limit swings in one of the world’s most volatile equity markets.

Trading was halted at about 1:34 p.m. local time on Monday after the CSI 300 Index dropped 7 percent, according to data compiled by Bloomberg. An earlier 15-minute halt at the 5 percent level failed to stop the retreat, with shares extending losses as soon as the market re-opened. The selloff, the worst-ever start to a year for Chinese shares, came on the first day the circuit breakers took effect.

The $7.1 trillion stock market is starting the year on a down note after data showed manufacturing contracted for a fifth straight month and investors anticipated the end of a ban on share sales by major stakeholders. Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on economy set to grow at its weakest annual pace since 1990.

Perhaps policymakers were still in vacation. So when the cat is away the mouse will play.

More...

Under the circuit breaker rules finalized last month, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent closes the market for the rest of the day. The CSI 300, comprised of large-capitalization companies listed in Shanghai and Shenzhen, fell as much as 7.02 percent before trading was suspended.

Chinese shares listed in Hong Kong, where there is no circuit breaker, extended losses after the halt on mainland exchanges. The Hang Seng China Enterprises Index retreated 4.1 percent at 2:12 p.m. local time.

The above table exhibits the broad based bloodbath in Chinese equities that was halted today due to new circuit breaker.

Absent in the above report has been the developments in today's offshore yuan (USD-CNH).  The CNH which has apparently fallen by a substantial amount...(or the USD has risen significantly)

This in contrast to the more tightly government controlled onshore Yuan (USD CNY) which likewise surged at the pm session

With the CNH falling more than the CNY, this has brought about a wider gap between the two. It really signs of strains being ventilated on the currency markets, which partly emanates from outflows (capital flight) and mostly from deflationary pressures within China. And strains in the currency market seem to have spilled over to stocks.

This also shows that no matter how the Chinese government tries to facelift its financial markets, pressures from imbalances will emerge elsewhere

Woes in China's stocks appears to have spread to Japan's Nikkei 225 which tanked by 3% today. 

And as of this writing US futures based on CNN data have likewise been significantly down.

Have these been writing on the wall for 2016 (not limited to financial markets but to real economies as well)?