Investing.com - APAC shares opened significantly higher on Tuesday, partially retracing Monday's losses as US markets experienced heavy selling and a spike in volatility overnight.
After the first 45 minutes of trade, the KOSPI 200 and Nikkei 225 were up by 4.6% and 9.8%, respectively, while the S&P/ASX 200 ticked up by 0.1%.
On Monday, Wall Street saw intensified unwinding of popular trades, resulting in significant declines in US technology shares and Japanese stocks suffering their worst day since the 1987 market crash.
US stock indexes opened sharply lower, mirroring international market declines, but recovered somewhat after a purchasing managers’ survey showed the services sector expanded slightly more than expected last month.
The tech-heavy NASDAQ Composite led with a 3.4% fall. Every industry in the S&P 500 declined, pushing the index down 3%. All 30 stocks in the Dow Jones Industrial Average ended lower, shedding 2.6% or 1,034 points.
The Russell 2000 index, which tracks small-cap stocks, lost 3.3%. Oil, precious metals, and bitcoin also dropped. The CBOE Volatility Index (VIX), Wall Street's "fear gauge," jumped more than 50% to its highest level since 2020.
The selloff began in Asia, where Japan's Nikkei 225 plunged 12% amid a surging yen, marking the worst single-day percentage drop since October 1987. This extended last week's rout following the Bank of Japan's decision to raise interest rates, which pushed the yen higher.
US economic data also contributed to the selloff, as investors unwound a popular Wall Street carry trade. For years, investors bought riskier assets using borrowed yen, thanks to Japan’s ultralow interest rates. The strengthening yen has disrupted this carry trade, prompting more margin calls and higher yen demand.
Investors are now debating whether the Federal Reserve might make an unusually large rate cut or even lower borrowing costs between meetings. Treasury yields recovered from early declines after a strong services sector reading. The Institute for Supply Management’s survey rose to 51.4 in July from 48.8 in June, indicating that the services sector is not as weak as manufacturing.
The yield on the 10-year Treasury note ended at 3.782%, down from Friday’s 3.795%. The 2-year yield, influenced by Fed rate expectations, inched up to 3.88%.
Major tech stocks fell at least 2.5% each, with NVIDIA Corporation (NASDAQ:NVDA) dropping 6.4%. Investors are questioning whether tech valuations have outpaced realistic profit forecasts. Warren Buffett’s Berkshire Hathaway (NYSE:BRKa) disclosed it had significantly reduced its stake in Apple Inc (NASDAQ:AAPL), sending Apple shares down 4.8%.
In commodities, Brent crude oil fell 0.7% to $76.30 per barrel, while gold was flat at $2,411.81.
Chinese shares ended lower amid broad risk-off sentiment due to weak US economic data. The Shanghai Composite Index closed 1.5% lower at 2,860.70, the Shenzhen Composite Index fell 2.1%, and the ChiNext Price Index dropped 1.9%. Foxconn Industrial Internet led the losses, falling 8.55%. However, airline stocks gained, with Spring Airlines up 2.7%.
Hong Kong shares also fell, with the Hang Seng Index down 1.5% to 16,698.36, and the Hang Seng Tech Index shedding 1.4%. Energy stocks led the declines, with Cnooc dropping 6.4% and PetroChina falling 5.4%. Property stocks were the top gainers, with New World Development up 5.3% and Wharf Real Estate Investment adding 6.2%.
Japan's Nikkei Stock Average plunged 12% to 31,458.42, its largest drop since October 1987. Financial and exporter stocks led the declines, with Sumitomo Mitsui Financial Group dropping 16% and Subaru Corp. falling 18%. The index gave up all gains made in 2024, falling 25% from its July peak. The 10-year Japanese government bond yield fell 20.5 basis points to 0.750%.
India's Sensex closed 2.7% lower at 78,759.40. Tata Motors fell 7.3%, Adani Ports & Special Economic Zone lost 5.9%, and Tata Steel dropped 5.3%. Hindustan Unilever (LON:ULVR) rose 0.8% and Nestle India gained 0.6%.
In the UK, stocks fell, with the FTSE 100 Index down 2.0% to 8,008.23. John Wood Group PLC posted the largest decline at 35%, followed by Clarkson PLC at 15%, and Zegona Communications PLC at 12%. St. James's Place PLC gained 0.7%, Fevertree Drinks PLC rose 0.6%, and Haleon PLC added 0.4%.
Elsewhere in Europe, markets closed lower, with the STOXX Europe 600 Index down 2.2% to 487.05, Germany’s DAX falling 1.8% to 17,339.00, and France’s CAC 40 declining 1.4% to 7,148.99.