Asian Angle | Good news, Asia: this time, stock market flu is evenly spread

It used to be said that when American stock markets caught a cold, Asian stock markets needed to worry about influenza. The turbulent events of this week on global stock exchanges partially vindicates this adage but something has changed and it’s quite profound, namely that the major Asian markets of today are proving to be less excitable than they used to be.

In percentage terms, Asian stock prices this time have fallen pretty much in line with their US counterparts. Compare that with the stock market crisis of 2008, when average share prices in New York and London dropped by 35 per cent and 31 per cent for the year, respectively. That year, Asian prices fared far worse. Shanghai ended the year with a breathtaking 68 per cent fall, in Tokyo prices slumped by 42 per cent and in Hong Kong the market ended the year down 48 per cent.

We are now just a decade on from that seminal 2008 crisis and what has changed in Asian markets (with the notable exception of the Chinese markets) is that individual investors make a less significant contribution to market turnover, meaning that the bulk of the trades are in the hands of less panicky professional investors.

Also, although this process was well under way a decade ago, the markets have become more international. London’s benchmark FTSE index, for example is no longer a proxy for British companies but for major multinationals with a London listing. In Hong Kong, despite its international aspirations, the local stock exchange is increasingly becoming a proxy for the performance of mainland Chinese companies while the New York exchange is edging away from its traditional domestic bias to reflect a much broader range of global companies.

The effect of this internationalisation works both ways because funds from the West are much more likely to be flowing East and the way these funds are allocated tends to mean that a big change in, say New York, is likely to be rapidly reflected in places like Hong Kong.