Asian Stocks Hit By More Selling As Funds Pull Out

Source : The Straits Times, Thu, Aug 16, 2007

ASIAN equities markets were rocked by more selling yesterday after two days of relative calm as fears grow that the credit squeeze may tip the US economy into recession.
Dealers said the sharp falls across the region were largely caused by foreign fund managers selling huge holdings to raise cash to meet obligations back home.

'Short-selling' by hedge funds - selling shares they do not yet own in anticipation of making a profit when the stock is bought back later - also fuelled the selldown.

'Asia is one of the few areas where funds are still sitting on fat profits. Despite the recent volatilities, the Straits Times Index (STI) and Hang Seng are still up around 10 per cent on the year. By contrast, all the gains on (Wall Street's) S&P 500 had been wiped out,' said a dealer.

The souring appetite for risk among investors hit emerging markets hard. Indonesia's Jakarta Composite Index was down 6.44 per cent, while the Philippine Stock Exchange Index fell 4.08 per cent.

The damage was more contained here although STI still recorded its third biggest one-day drop this year, falling 113.34 points, or 3.35 per cent, to 3,273.25. About $73 billion has been wiped off the value of local shares in three weeks.

Hong Kong's Hang Seng Index was down 2.87 per cent, while Tokyo's Nikkei 225 fell 2.19 per cent.

Regional financial stocks were among the worst hit. Singapore's DBS Group Holdings fell 4.72 per cent while Australia's giant merchant bank, Macquarie, was down 5.05 per cent. In Japan, Mitsubishi UFJ Financial and Sumitomo Mitsui Financial Group fell by about 5 per cent each after disclosing losses on securities with US mortgage exposure.

The concerns over a possible credit squeeze also hit currency markets where the Indonesian rupiah slipped 0.5 per cent to 9,400 to the US dollar - its lowest level in a year.

Global markets were already jittery but the spark for yesterday's selldown was a profit-earning report from US retail giant Wal-Mart. It blamed the US housing slump and high fuel prices for its disappointing second-quarter results and raised the spectre that US consumer spending might slow, which helped send the Dow Jones Industrial Averages tumbling 207 points overnight.

The pain continued last night with European markets all down sharply.

Citigroup's chief Asia strategist, Mr Markus Rosgen, expects regional stock markets to stay volatile as hedge funds may be forced to sell off their positions early if share prices continue to fall.

'Unlike a typical investor who is unlikely to be a forced seller...there are now 8,800 hedge funds, which...can't afford to take big losses on their stock holdings.'

And there is also a growing sense that the worst is yet to come.

Mr Marshall Gittler, chief Asian strategist of Deutsche Bank Private Wealth Management, said: 'We expect that the bad news is far from over and believe it is too early to start bottom-fishing.'