Asian stocks slide as fresh jitters damage risk sentiment
HONG KONG (Reuters) - Asian stocks posted their biggest drop in two weeks on Wednesday as growing doubts about Donald Trump's economic growth agenda prompted investors to dump risky assets and rush to safe havens such as gold and government debt.
Equity markets across the region were a sea of red and the Australian dollar nursed heavy losses as funds took profits from a two-week long rally, pushing a gauge of market volatility (VIX) up to its highest levels this year.
Stock markets in Europe are set to take Asia's cues and open lower with key index futures pointing down after U.S. stocks (DJI) lost more than 1 percent in heavy trading.
Japanese stocks (N225) led regional losers, falling 2 percent, as investors ignored data showing exports grew the most in more than two years in February.
DECIDEDLY RISK-OFF
In a BofA Merrill Lynch survey conducted last week, 34 percent of investors found equities to be most overvalued of all asset classes, the highest proportion in 17 years, with U.S. stocks identified as the most expensive.
"Investor positioning argues for a risk rally pause in March/April, with allocation to equities at a two-year high and bond allocation at a three-year low," said Michael Hartnett, chief investment strategist at the bank.
"Policy is the key catalyst for the Icarus trade to fly higher in the coming months."
With investor mood decidedly risk-off, the Japanese yen scored some chunky gains against the U.S. dollar , rising to a four-month high of 111.60. The greenback slipped below a key level of 100 (DXY) against a trade-weighted basket of its peers.
"Unlike the dollar and Treasuries, the 'Trump trade' still had an impact on equities. But if such impact on equities is to fade, it would weigh on dollar/yen. The dollar will also suffer against other currencies as U.S. yields would decline," said Shin Kadota, senior strategist at Barclays (LON:BARC) in Tokyo.
Bonds gained with yields on two-year U.S. debt (US2YT=RR) falling to 1.27 percent in overnight trades, retreating further from a 7-1/2 year high of 1.38 percent hit last Wednesday when the U.S. Federal Reserve raised interest rates.
Gold was on track to extend its overnight strong performance with the precious commodity perched comfortably at a two-week high of $1,245 per ounce.
Commodities other than gold, however, have had a rough outing with copper and iron ore prices down sharply with a spike in volatility flushing out a lot of speculative positions.
Oil prices declined as concerns about new supply overshadowed the latest talk by OPEC that it was looking to extend output cuts.
U.S. West Texas Intermediate crude (CLc1) extended overnight losses to fall to fresh four-month lows at $48.07 a barrel.
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