(ATF) Asian markets tumbled after talks about a $2-trillion US stimulus package faltered, with Democrats saying the Republican-designed package favoured big businesses.
The Australian S&P ASX 200 index dived 7.4%, Korea’s KOSPI sank 5.3% and Hang Seng index retreated 4.4%. The MSCI Asia Pacific ex-Japan index tumbled 3.8% with only Japan’s Nikkei index marginally in positive territory as markets played catch up after Friday’s holiday closure.
Oil prices tumbled too as financial markets remained uncertain about the economic impact of the pandemic which has now claimed 14,641 lives and infected over 335,000 people globally.
“The governments are using the GFC playbook for a health pandemic,” said a Hong Kong-based research head referring to the global financial crisis of 2007/2008. “The spending should be on infrastructure like hospitals and healthcare and to encourage job creation by small companies rather than to give the money to S&P 500 companies to spend on share buybacks.”
The decline in market-making activity was also blamed for the off-the-chart drop in some markets with investors unable to stomach the volatility.
“During the GFC the market-making ability was estimated at around a trillion dollars globally as against the $3 trillion real money portfolio,” a Singapore-based fund manager said.
“The two have gone in opposite directions since then with real money ballooning to over $10 trillion and the market-making ability declining to less than half a trillion. There is no ability to warehouse or absorb this kind of dislocation,” he added referring to the complete derailment of the price discovery process.