New Zealand investors' nerves will be on edge today as the sharemarket opens against a backdrop of sharp overnight falls on US and European markets, after Chinese stocks suffered their worst one-day sell-off in a decade.
The New Zealand dollar also fell markedly, losing three-quarters of a cent
against the greenback during the night to around US70.25c shortly before 8am as the yen strengthened against the US dollar.
With a weak US economic report reigniting concerns about a slowdown in global growth, the major US indexes tumbled more than 1 per cent in the first hour.
That followed a rout in global stock markets, amid fears that Chinese authorities would crack down on stock market speculation.
China's Shanghai Composite dropped almost 9 per cent, European shares were off 2.5 per cent and shares of Latin American stocks fell between 3 per cent and 4.5 per cent.
Britain's top share index tumbled more than 2 per cent amid the global sell-off, with banks and miners worst hit.
The drop in Chinese equities fuelled knock-on selling across Asia. Sovereign emerging debt spreads over US Treasuries widened almost 10 basis points and currencies from South Africa to Brazil fell over one per cent against the US dollar.
The VIX market volatility index, known as Wall Street's fear gauge, jumped 16 per cent to a five-month high.
Meanwhile the party for yen "carry trades" -- in which investors had borrowed yen at low interest rates and used the proceeds to invest in higher-yielding assets in other currencies, such as New Zealand -- may be ending sooner than expected.
The 9 per cent slump in Chinese stocks prompted investors to reduce some risk in their leveraged portfolios.
The Japanese yen jumped more than 1.5 per cent against the US dollar, and was up about 1.0 per cent against the euro, as investors unwound trades.
The yen had slid to a four-year low against the US dollar in January, as low Japanese interest rates and low volatility in global financial markets, resulted in the "carry trade" value soaring to an estimated US$1 trillion ($1.4 trillion).
The Bank of Japan's decision last week to raise its benchmark interest rate to a decade-high of 0.5 per cent did little to restrain investors from selling the yen and buying instruments with higher yields, until now.
- NZPA
