Bloodbath In Asia

Source : TODAY, Friday, August 17, 2007

As markets tumble, region’s small investors feel the pain

EVEN before the Singapore stock market opened at 9am yesterday, many a trader had his finger on the “sell” button. And for the next hour or so, share prices went into a free fall.

The day that ensued was, as local remisier Albert Fong called it, “so wild”.

From Tokyo to Sydney, Hong Kong to Mumbai, panic seized bourses, prompting one of the worst sell-offs in years, as investors fled to safer havens such as government bonds.

Growing fears of a credit contagion infecting Asian economies dragged down the Straits Times Index (STI) before bargain-hunters tiptoed in to prop up prices.

At the closing bell, the index stood at 3,152 points, down 121 points, or 3.7 per cent.

Add to this the previous day’s 3.3-per cent plunge, and the STI has suffered its biggest twoday losses in six years — since September 2001.

More frightening for some, perhaps, is how all the STI’s gains since the start of the year are fast receding. At its peak this year, the index was up 22.7 per cent from January. As of yesterday, the gains had dropped to around 5.6 per cent and industry players are unsure if more bloodletting is in store.

“It’s a selling panic,” high-profile fund manager Mark Mobius, who oversees US$30 billion ($46 billion) at Templeton Asset Management in Singapore, told Bloomberg. “We’re seeing a lot of negative news with very few positives.”

More mortgage firms outside the United States, the epicentre of the credit crunch sparked by rising delinquencies in high-risk home loans, are also sounding alarm bells. In Australia, home loan group Rams sparked fresh jitters after it said it was unable to refinance US$5 billion of debt.

Ms Nicole Sze, an analyst at Bank Julius Baer & Co, which manages US$350 billion worldwide, added: “The sell-off is fuelled by fear and a concern that the sub-prime issue will snowball into something more significant.”

Echoing this sentiment, Mr Patrick Chang, who helps manage US$4.5 billion at CIMB Principal Asset Management in Kuala Lumpur, said: “Blood is hitting the streets, everyone seems to be panicking … we don’t know when it’s going to end. Liquidity is drying up.”

But amid the chaos, government officials worldwide were trying to assuage jittery nerves.

In response to media queries, the Monetary Authority of Singapore (MAS) yesterday issued a statement saying it had been “closely monitoring” financial developments.

“At this stage, domestic money market and foreign exchange markets are functioning in an orderly fashion and MAS has not needed to conduct any extraordinary operations in the markets. However, we stand ready to act if the situation warrants,” said an MAS spokesperson.

MAS and its counterparts across South-east Asia reportedly stepped in to defend their currencies yesterday, as investors continued dumping “risky” emerging-market assets.

Even the closely-guarded Chinese yuan ended the day at 7.5983 against US dollar, depreciating from Wednesday’s close of 7.5869.

At home, the man in the street is “getting more cautious”, said Mr Fong, who is also president of Singapore’s Remisier Society. “People are not sure how much further the market will slip,” he told TODAY.

According to broker CIMB, the worst is not over yet. “We expect to see a continued deteriorating of asset quality in the sub-prime market though the sub-prime woes should not have serious broader spill-over effects on banks or thrift institutions,” said CIMB.

Looking around the region, the brokerage also highlighted some bright spots: Asia’s pool of liquidity is abundant, bank exposure to sub-prime loans minimal and economies are more resilient to external shocks.

But this was of little comfort in Seoul. The Kospi was the region’s biggest decliner, falling 6.9 per cent — its steepest percentage drop in five years. This was made worse by the public holiday which closed the market on Wednesday, when other markets in Asia were already plunging.

Alarmed by the drop, South Korean President Roh Moo Hyun’s office urged investors “not to overreact”.

In Thailand, the SET fell 3 per cent, as Deputy Prime Minister and Industry Minister Kosit Panpiemras said “foreign investors are removing their money from this part of the world for liquidity”.

He warned that if the US economy slows because of its sub-prime loans “fiasco”, Asian exports would “catch a cold”.