TOKYO — Asian shares slipped on Friday as mounting concern about the health of European banks further threatened a global economic outlook already under strain from falling oil prices, and slowdown in China and other emerging markets.
The prices of yen, gold and liquid government bonds of favoured countries soared as investors rushed to traditional safe-haven assets.
"The markets are clearly starting to price in a sharp slowdown in the world economy and even a recession in the US," said Tsuyoshi Shimizu, chief strategist at Mizuho Asset Management.
"I do not expect a collapse or major financial crisis like the Lehman crisis but it will take some before market sentiment will improve," he said.
MSCI’s index of Asia-Pacific shares outside Japan fell 0.5%. Japan’s Nikkei fell 5.3% to a 15-month low as a sudden spike in the yen took most investors by surprise.
"It is hard to find a bottom for stocks when the yen is strengthening this much. It is hard to become bullish on the market in the near future," said Masaki Uchida, executive director of equity investment at JPMorgan Asset Management.
"But the valuation of some (Japanese) bank shares is extremely cheap. So for long-term investors, it could be a good level to buy."
Financial shares led losses in Australia and Hong Kong though their declines are still modest compared with peers in Europe and the US.
The strengthening yen touched ¥110.985 to the dollar on Thursday, rising almost 10% from its six-week low touched on Jan 29, when the Bank of Japan introduced negative interest rates.
The currency last stood at ¥112.22, hardly showing any reaction after Japanese Finance Minister Taro Aso stepped up his verbal intervention on Friday, saying he would take appropriate action as needed.
MSCI’s broadest gauge of stock markets fell 0.6% in Asia on Friday, flirting with its lowest level since June 2013.
It has fallen fell more than 20% below its record high last May, confirming global stocks are in a bear market.
On Wall street, the US benchmark Standard & Poor’s 500 index fell 1.23% on Thursday to close at 1,829.08, its lowest close in almost two years and down 10.5% for the year.
The FTSEurofirst 300 index of top European shares sank 3.7% to its lowest level in two-and-a-half years.
Financial counters led the losses globally as disappointing earnings from Société Générale added to the gloomy mood brought on by poor results from Deutsche Bank last month.
Banks in Europe ended 6.3% lower, while the S&P financial index dropped 3%.
Stress in the financial sector is stoking concern that funding conditions for some companies may tighten, even as many of the world’s central banks pump in funds through unorthodox measures.
A funding drought could be a death knell for some energy companies that have struggled to make ends meet as oil trades at close to a quarter of its value just a few years ago.
In a worrying sign that Europe’s debt problems could reappear, the Portuguese 10-year bond yield surged above 4% for the first time since 2014.
That is a clear departure from last year, when investors, hunting for yield, were buying up debt from Portugal and other indebted countries.
In contrast, investors are now flocking to more liquid, and higher-rated bonds.
The 10-year US Treasuries yield fell to as low as 1.53%, a low last seen in August 2012, which is just before the Fed started its third round of quantitative easing. It stood at 1.657% in early Asian trade.
Federal funds rate futures almost completely priced out the chance of a rate hike.
Gold surged to one-year high of $1,262.90 an ounce on Thursday, rising over 4% in its biggest daily percentage gain since September 2013. It last stood at $1,237.5.
US crude futures last traded at $27.44, up 4.7% from late US levels, helped by comments from an Organisation of the Petroleum Exporting Countries (Opec) energy minister sparking hope of a co-ordinated production cut.
International benchmark Brent futures rose 4.3% to $31.35.