Trump Rhetoric Sinks Global Stocks -- Update

By Kenan Machado Features Dow Jones Newswires

Global stocks extended their selloff as investors continued to pare back risk positions, walking away with their profits from a strong year as geopolitical tensions rise.

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European stocks widely fell 1% Thursday, helping pressure U.S. equities-- which then sold off further in the last 90 minutes of trading after President Donald Trump said his Tuesday threat to unleash "fire and fury" on North Korea "maybe wasn't tough enough." U.S. indexes ultimately logged their biggest declines since May 17.

China raised the stakes with an editorial in the state-run Global Times late Thursday saying Beijing would intervene if there is a first strike against North Korea.

"This situation is beginning to develop into this generation's Cuban missile crisis," wrote ING's Robert Carnell in a morning note to clients.

Before their decline in recent days, Asian markets had logged some of the world's biggest gains this year. For some investors, the rising tensions between the U.S. and North Korea--and the typical late-summer slowdown in trading--are an opportunity to pull back and await developments.

"Market conditions were right for profit-taking" in stocks this week, said Alexander Ho Wan Lee, chief investment officer at Nimbus Capital Group.

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Stock benchmarks in South Korea, Hong Kong and Shanghai were all down more than 1.5% by midday, with Australia not far behind. Benchmarks in smaller markets elsewhere fell a bit less than 1%, while Japan's markets were closed for a holiday.

Korea's Kospi, which came into Friday on its first three-session losing streak since April--down 1.6% for that stretch--is poised to end the week at its lowest level since late May. Still, it started the day still up 16% for the year, which speaks to how strong Korean stocks, and many Asian markets, have been. Index giant Samsung Electronics is a major factor in the reversal, down 2.9% Friday and 6.5% for the week--its worst week since October.

Even hotter in 2017 has been Hong Kong. When trading ended Tuesday, the Hang Seng Index had risen in 19 of the past 22 sessions and was up more than 25% for the year. But it fell Wednesday and Thursday--its first consecutive down days in a month--and ended morning trading Friday down 1.9%. If that holds, it will be the market's biggest one-day drop since November.

Chinese messaging and social-gaming company Tencent, whose surge of about 70% this year was key to the Hang Seng's gains, is off 4% Friday.

Given the lack of sustained stock selling this year in much of the world--let alone large declines--concern that a market correction is at hand isn't a surprise, analysts say. Many pullbacks have quickly reversed before they reached the 10% mark that commonly denotes a correction.

But the current geopolitical situation could keep potential buyers on the sidelines for now, said Mr. Lee--in fact, he added, it is already keeping some out of Asian markets, despite robust recent quarterly results from companies in the region.

In China, selling deepened as Friday morning progressed. Beijing warned of irrational trading in metals after steel-rebar and aluminum futures in China hit five-year highs this week.

And when Japanese traders get back to their desks on Monday, stocks will need to catch up with not just Friday's regional weakness but fresh yen gains. The currency strengthened steadily during Thursday's European trading and gained further in Asia. The dollar fell below Yen109 for the first time since June.

Early signs are the selling isn't set to worsen at the start of U.S. trading.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

August 11, 2017 01:14 ET (05:14 GMT)