Asian Stocks Rise Back from 2008-Low Decline, Japan Leads

Asian stocks surged as bargain hunters stepped in after fears of a US economic downturn caused a significant regional benchmark drop, the worst single-day decline since 2008.

The MSCI Asia Pacific Index soared by up to 3.9%, marking its best performance since November 2022, following a steep fall of over 6% on Monday. Japan spearheaded the recovery, with the yen weakening after significant gains against the dollar had previously driven the country's stocks into a bear market.

In the previous two sessions, regional equities suffered as investors worried about a potential US recession and an overheated artificial intelligence rally. Additionally, a rapid yen surge led to the unwinding of carry trades globally, putting pressure on technology stocks.

"The market's reaction was quite extreme yesterday, leading to today's sharp rebound," noted Rupal Agarwal, Asia quantitative strategist at Sanford C. Bernstein. "I anticipate continued market volatility, so I recommend focusing on late-cycle defensive stocks, particularly those with quality or dividend yield."

On Tuesday, alongside Japan, technology-heavy South Korea and Taiwan also saw stock recoveries. US equity futures rose as well, partly driven by an uptick in the US July service purchasing managers' index, which alleviated some concerns about the world’s largest economy.

Japan's stocks bounced back dramatically on Tuesday after the Nikkei 225 and the Topix plunged over 12% in the previous session. Other Asia-Pacific markets also rose.

The Nikkei 225, which experienced its biggest loss since the 1987 Black Monday crash in the previous session, and the broad-based Topix both gained over 7%, peaking with session highs of more than 10%. This rebound returned both indices to a year-to-date gain.

The Bank of Japan's decision to raise rates to their highest level since 2008 on July 30 had strengthened the yen to a seven-month high, pressuring stocks.

Global markets were rattled by US recession fears, exacerbated by a weaker-than-expected jobs report.

Japanese trading giants all rebounded by over 6%, with Mitsui rising more than 9% and Softbank Group Corp surging over 8%. Gains were also seen in the automotive and semiconductor sectors, with Honda and Renesas Electronics climbing over 13% and 17%, respectively.

The yen depreciated by 0.83%, trading at 145.37 against the US dollar. South Korea's Kospi surged over 3%, while the small-cap Kosdaq increased by more than 5%. The South Korean markets had temporarily halted on Monday after an 8% drop triggered circuit breakers.

Samsung Electronics in South Korea rose by 2.1%, and chipmaker SK Hynix advanced by 4.5%.

Mainland China's CSI 300 remained flat, while Hong Kong's Hang Seng index increased by 0.9%. Australia's S&P/ASX 200 gained 0.4%.

Oil prices also climbed, with Brent crude rising by 1.65% to $77.56 per barrel, and US West Texas Intermediate crude increasing by 1.86% to $74.30 per barrel.

The Reserve Bank of Australia kept its cash rate steady at 4.35% on Tuesday, as economists had anticipated. The bank highlighted that inflation has stayed above its target midpoint for 11 consecutive quarters and that Australia's economic outlook remains uncertain.

The RBA also slightly raised its GDP growth forecast for the year ending December to 1.7%, up from a previous estimate of 1.6% in May. Meanwhile, the CPI is now expected to be lower at 3.0% for the year ending December, down from a prior expectation of 3.8%.

In the US overnight, the Dow and the S&P 500 experienced their worst sessions since September 2022. The Dow plummeted by 1,033.99 points, a 2.6% decline, while the S&P 500 fell by 3%. The Nasdaq Composite dropped by 3.43%, finishing 15% below its closing high.