Shares plunge as US slowdown adds to emerging markets woes

Tuesday 04 February 2014 17.59
Japan's Nikkei index closes over 4% lower
Japan's Nikkei index closes over 4% lower

World shares slumped to a near four-month low earlier as signs the US economy was faltering compounded already frayed nerves following a sharp sell-off in emerging markets. 

A weaker than expected report on US factory activity hurt global equity markets and the dollar yesterday and left investors scurrying for traditional safe-haven assets such as US and German government bonds. 

It had been another tough Asian session as traders returning from Lunar New Year holidays got up to pace with the sell-off and European markets looked in no mood to deviate from the downward course.

New falls were recorded on all the major bourses with shares in London closing down 0.2% and Frankfurt shares dropping by 0.6%. 

Shares in Dublin closed slightly higher, however, having trading down in the afternoon.

German government bonds, considered to be one of Europe's most secure investments, saw prices hit a six month high while most of the rest of the region lost ground.

Meanwhile, Tokyo stocks plunged 4.18% today after that weak US manufacturing data, with the headline index shedding 14% in a month after its huge rally last year.

The benchmark Nikkei-225 index lost 611 points to close at 14,008.47, marking the worst percentage loss of the year. The Topix index of all first-section shares fell 4.77%, or 57.05 points, to 1,139.

Just over a month after the Nikkei ended 2013 with a world beating 57% rally - its best annual run in over four decades - Japanese shares have entered in what analysts say is a corrective phase.

The rise of the yen against the dollar has pushed down Japanese stocks in the early weeks of 2014, after the currency's sharp decline through last year boosted the market. A weaker yen gives Japanese exporters the flexibility to cut prices of the goods they sell overseas and it inflates repatriated profits, while a stronger yen undercuts those gains.

The Tokyo market's decline today came as Wall Street suffered a sell-off after a surprisingly weak US manufacturing report sparked another round of selling amid concerns about the strength of the global economy.

Emerging markets have also been shaken with fears of capital flight as the US Federal Reserve pulled back again on its massive stimulus spending, widely credited for buoying global stock markets. The Dow Jones Industrial Average closed over 2% lower last night.

The US data showed that manufacturing sector growth slowed sharply in January. The Institute for Supply Management's purchasing managers index sank to 51.3 from 56.5 in December, not far above the 50 level between expansion and contraction.