Further Unwinding due to US woes..

Nov 13, 2007

Bourses in Asia tank on global concerns
US woes, yen carry trades' unwinding and China's curbs hurt sentiment

ASIAN bourses got hammered yesterday, as nervous investors scrambled for the exit under the weight of worries on three key global fronts. They were unnerved by the deepening credit crisis in the United States and by fresh fears of a possible unravelling of the yen carry trade - massive yen-denominated debts.

Particularly hard hit were regional bank counters, which plummeted, as jitters over the health of global financial institutions spread to Asia. Hedge funds dumped shares across the region to repay their yen loans, driving the yen to an 18-month high against the greenback with their massive yen purchases.

'The sell-off is beginning to resemble a panic. No one seems to have an appetite for stocks anymore,' said a local brokerage dealer.

Market sentiment was also spooked on a third front - by China's move over the weekend to dampen speculation in its domestic stock markets and cool its red-hot economy. China lifted the reserve requirements for banks, effectively curbing lending by forcing banks to hold more cash.

Dow bounces back

STOCKS in the United States rose early yesterday, rebounding from last week's heavy losses, as investors hunted for bargains in financial services and other sectors.After two hours of trading on the New York Stock Exchange, the Dow Jones Industrial Average was up 92.67 points, or 0.71 per cent, at 13,135.41. The Nasdaq Composite Index rose 4.14 points, or 0.16 per cent, to 2,632.08.

ALL IN THE RED

In the ensuing region-wide selldown, Hong Kong's Hang Seng Index plunged 1,117.68 points to 27,665.73.

In Singapore, the benchmark Straits Times Index sank below the 3,500 support level briefly, as blue chips such as banks, shipyards and property counters came under selling pressure. It ended 88.55 points, or 2.46 per cent, lower at 3,511.12 - its lowest close since Sept 18, when the US Federal Reserve sparked a global rally with its surprise 0.5-percentage-point cut in interest rates.

Other bourses were bloodied over concerns that Asian exports to the US would become more expensive with the sagging greenback. Tokyo's Nikkei-225 Index fell 2.48 per cent, and Seoul's Kospi Index lost 3.37 per cent.

Yesterday, the US dollar fell by nearly 1 per cent to 109.54 yen. This took its decline against the yen in the past fortnight to 5.3 per cent.

Among the worst hit stocks were banking giants such as Hong Kong's HSBC Group Holdings, which lost HK$3.90 to hit HK$137.10, and Singapore's DBS Group Holdings, which fell 70 cents to $19.80.

A sell-off of regional banks was ignited by fresh US sub- prime worries, after Wachovia revealed a potential US$1.7 billion (S$2.45 billion) loss on mortgage-related debt last Friday. Among the biggest casualties of the hedge funds' sell- off were the Singapore Exchange, which shed 70 cents to $13.60, and Hong Kong Exchanges and Clearing, which was down HK$16.20 at HK$225.40.
But traders are divided over the prospects of a further rate cut by the Fed.

'The fear now is that the US Fed may be caught between a rock and a hard place. Cut interest rates, and the US dollar may plunge further. Keep rates where they are, and the already shaky US banking giants may wobble even more,' a dealer noted.

But Deutsche Bank Private Wealth Management chief Asian strategist Marshall Gittler feels the Fed would 'not want to disappoint fragile and skittish markets by standing pat if expectations of an interest rates cut is priced into the futures market'.

He expects the fears gripping regional stock markets to subside, if there are no further announcements this week from US banks of further write-downs.