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China stocks lead Friday's Asian sell-off after US plunge

Hong Kong H-shares and Shanghai drop 4% as Tokyo market falls 2%

TOKYO -- Asian shares were sold off across the board on Friday, as investors responded to another Wall Street plunge that put U.S. stocks into correction territory overnight.

Chinese shares led the decline during the Asian trading day. The Hong Kong H-share index, which comprises major mainland companies listed in the territory, fell by 3.9% to close at 11,901.67. The decline was steeper than that of the Hang Seng Index, which lost 3.1% to close at 29,507.42, breaching the psychologically important 30,000 mark for the first time this year.

The selling hit stocks of all stripes: financials like China Construction Bank (CCB) and Ping An Insurance Group; transportation players such as Cosco Shipping Holdings and China Eastern Airlines; construction companies, namely China Railway Construction; and conglomerates, like Fosun International.

In the mainland market, the Shanghai Composite -- which is subject to limits on the flow of foreign funds -- dipped 4.05% to close at 3,129.85.

Part of the selling pressure came from investors trying to lighten their positions ahead of the long Lunar New Year market holidays, around Feb. 16. Investors tend to unload risky assets before a long break. This factor applies not only to Hong Kong and mainland China, but also Taiwan, South Korea, Vietnam and parts of Southeast Asia. 

"The market came under pressure as views spread that the authorities will tighten regulations over the financial markets and press for further deleveraging," said Huang Yongxii, Shanghai representative at Toyo Securities. He said investors took a cue from the decision by the People's Bank of China on Tuesday to focus on reducing financial market risks in 2018.

The Tokyo market saw significant losses again, as well. The Nikkei Stock Average closed down 2.3% at 21,382.62, the lowest close in almost four months. Only 15 out of the 225 constituent stocks ended in positive territory, including Shiseido, Nikon and Ricoh.

An investor fear gauge linked to the Nikkei average rose as high as 38.31, exceeding an earlier peak of 35.34 marked on Tuesday. The gauge closed at 36.05. Rises in the fear index and stock sell-offs tend to fuel each other: Investors look at the fear gauge to determine the direction of the market, and then sell more.

Brokers said investors were reluctant to take on new positions before a long weekend. Japan's market will be closed on Monday for a national holiday.

Taiwan's Taiex index ended down 1.5%, with bicycle producer Giant Manufacturing and technology company Advantech leading the fall. In South Korea, the Kospi finished down 1.8%, as Lotte Shopping and Kakao lost more than 7% each.

The selling has also spread to Indian stocks, which just opened, with the Sensex index off by more than 1%. Southeast Asian benchmark indexes sustained losses, too. Singapore's ST Index declined by 1.1% to close at 3,377.24. Australia's benchmark All Ordinaries fell 1% to end the week at 5,937.50.

Investors' nerves are frayed after the Dow Jones Industrial Average lost 1,032.89 points, or 4.1%, in New York overnight. It was the second-biggest point decline on record, after Monday's 1,175.21-point tumble.

The broader S&P 500 gave up 3.8%, leaving both indexes in correction territory -- defined as a decline of more than 10% from a recent peak -- for the first time in two years. The turmoil was sparked by rising concern about U.S. interest rates, as the 10-year U.S. Treasury note yield rose as high as 2.884%, nearing Monday's four-year peak of 2.885%.

Investors flocked to the safe haven of the yen, pushing up the Japanese currency as high as 108.50 against the dollar after it closed on Thursday at 109.50.

A stronger yen reduces the yen-denominated value of overseas income for Japanese corporations and is therefore seen as a negative for stocks, especially those of exporters. "Investors had been looking for the yen to weaken and boost corporate earnings. The yen rise has dashed such hopes," said Yoshihiro Ito, chief strategist at Okasan Online Securities.

"Investors worry that a stronger yen would reduce the corporate appetite for fresh investment, pay increases, dividend hikes and share buybacks," Ito added.

Japanese Finance Minister Taro Aso said he is "closely monitoring developments in the Japanese and the global economy, including those in the financial markets," as he tried to calm investors. "The fundamentals of the global economy," he stressed, "aren't bad."

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