Bourses Bleed Again

Source : TODAY, Thursday, August 16, 2007

Investors shun 'risky' Asian assets; STI hits 4-month low

THE bears were out in full force yesterday.

Share prices tumbled across the region, as wave after wave of bad news hit markets, signalling that the worst is far from over.

And it was not just the markets, the wider economy too may be feeling the pain of the credit woes in the United States, say some.

The theme underlying yesterday's selldown mirrored that of the past week. Defaults in the US subprime home loans sector — which carry a high-risk because they are given to people with poor credit histories — are still weighing on banks that own parts of the mortgages via complex investment funds.

The difference is that the growing uncertainty has silenced experts who had been talking about fishing for stocks on the cheap.

"Due to the heightened nervousness surrounding world equities markets led by Wall Street, the bulls may continue to retreat for a while," said local brokerage AmFraser Securities.

Yesterday, the Straits Times Index (STI) plunged a sharp 3.3 per cent or 113 points to close at 3,273 points, erasing the gains made in the past four months.

Some 798 stocks lost ground — led by banking and property counters — compared to 148 gainers. Still, for the year to date, the STI is up 9.6 per cent.

Like the small Singapore market, the rest of Asia took its cue from US bourses, which also hit a four-month low the night before.

Indonesia took the worst beating, nosediving 6.4 per cent, the worst drop in a year. Second was the Philippines, which shed 4.1 per cent, followed by Japan's Nikkei 225 Stock Average which dropped 2.2 per cent to see its lowest close so far this year.

Even China stocks, which have continued to climb despite the liquidity fears, succumbed to a mild slip of 0.06 per cent.

"The bearish camp that looks at this as a trigger for a real economic downturn seems to be growing," Mr Thue Isen, a fund manager at Bankinvest Group, told Bloomberg.

Adding to the dismay was data suggesting that Americans — who buy much of the world's goods — are spending less. Pointing to lower-than-expected sales, the boss of discount retail giant Wal-Mart said Americans face "difficult pressure economically".

Other US retail chains including Home Depot have also suffered falling revenues.

If the US economy slows, so will the rest of the world, especially countries such as Singapore which are reliant on external trade.

Foreign exchange markets also caught the blues, as investors dumped Asian currencies.

The Singapore dollar sank to a six-week low against the greenback, as the US dollar strengthened to S$1.5304. In Indonesia, the central bank stepped in to defend the rupiah, which slumped to its lowest since June 2006.

Dealers told AFP that although Asia's exposure to the US mortgage problems appeared to be limited, the fear was that foreign funds would be forced to sell Asian stocks to cover losses on subprime loans to risky borrowers.

"The word of the day is to reduce exposure to emerging markets,'' said Manila-based Roland Avante, treasurer at Chinatrust (Philippines) Commercial Bank.

"There is growing demand for dollars as people move to U.S. Treasuries."

Fears of a global credit contagion were heightened yesterday when analysts downgraded the stocks of two giant lenders: Deutsche Bank and UBS.

"Financial system stresses are significant'' and there is "further possible bad news out of the broader German banking market," Merrill Lynch wrote in a note.

More fund managers also reported losses linked to the subprime problem.

Sydney-based Basis Capital Fund Management said losses at one of its hedge funds may exceed 80 per cent as the U.S. subprime mortgage rout is prompting creditors to force the Australia firm to sell assets.

On the same day, Sentinel Management Group, the Illinois-based cash-management firm that oversees US$1.6 billion, asked regulators for permission to freeze client withdrawals.

Said Vontobel Asset Management's chief strategist Thomas Steinemann: "There's a lot of uncertainty about what's going on and who has lost money from the credit-market debacle."