SINGAPORE (Reuters) – Asian stocks slumped on Friday as tensions ramped up between the U.S. and North Korea, sending investors fleeing to less risky assets such as gold, the yen and U.S. government bonds.
South Korea’s KOSPI .KS11 fell 1.4 percent, taking its losses this week to nearly 3 percent.
The Korean won KRW=KFTC also continued to skid, sliding 0.3 percent to 1,145 won to the dollar, after earlier sinking to its lowest level in a month.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.6 percent in its third session of declines, heading for a 1.5 percent drop for the week.
Australian shares were down 1.5 percent, set for a weekly loss of 0.8 percent. Japanese markets were closed for a holiday.
Overnight, Wall Street closed sharply lower after Trump, with fiery rhetoric, warned Pyongyang against attacking Guam or U.S. allies after it disclosed plans to fire missiles over Japan to land near the U.S. Pacific territory.
Many markets had already been at record or multi-year highs after an extended rally, leaving them vulnerable to a sell-off.
“We’re not very oversold yet so the market still has more downside left to it. What we’re seeing today is political tensions over North Korea and the United States … making people nervous,” said Robert Pavlik, chief market strategist at Boston Private Wealth in New York.
“We’re still close to the all-time high so that makes people a little nervous too, so they might say now might be the time to take a little bit of money off the table.”
Trump took specific aim at North Korean leader Kim Jong Un, saying, he had “disrespected our country greatly,” and would not be “getting away with it.”
U.S. stock futures ESc1 were marginally softer on Friday.
The MSCI World index .MIWD00000PUS was slightly lower, extending Thursday’s 1.1 percent drop, its biggest one-day slide since May 17, as U.S. President Donald Trump stepped up his rhetoric against North Korea.
“The latest threats over North Korea have finally escalated to the point where market has been obliged to react,” Ric Spooner, chief market analyst at CMC Markets, wrote in a note.
“U.S. markets had previously been becalmed amidst the Goldilocks scenario of strong profit growth, low interest rates and full valuations. Difficult to assess political risk is now intruding on this scenario.”
The dollar extended losses against the yen to hit a new two-month low. It was down 0.1 percent at 109.07 yen JPY=, after retreating 0.8 percent on Thursday.
Japan is the world’s biggest creditor country and there is an assumption that investors there will repatriate funds in a crisis.
Weakness in U.S. Treasury yields may also be supporting the yen, some analysts said.
U.S. Treasury yields US10YT=RR fell to as low as 2.197 percent, their lowest level since June 28, overnight. They were at 2.201 percent on Friday.
The dollar eased slightly against a basket of major currencies .DXY to 93.356.
Gold prices XAU= rose 0.2 percent to $1,287.30 an ounce, after surging over 2 percent in the previous two sessions to a two-month high. It is set for a weekly gain of 2.4 percent.
U.S. crude oil crude futures CLc1 were little changed at $48.59 per barrel. They plunged 2 percent on Thursday on fears of slowing demand and lingering concerns over a global oversupply. It is on track for a weekly loss of 2 percent.
Global benchmark Brent LCOc1 was marginally lower at $51.88, after Thursday’s 1.5 percent drop. It is poised to end the week down 1 percent.
Reporting by Nichola Saminather; Additional reporting by Rodrigo Campos; Editing by Kim Coghill