(SINGAPORE) Shares in Asia yesterday suffered some of their worst one-day falls this year, with markets bracing themselves for further selling as hedge funds raise cash to pay off panicking investors.
'People are pulling back in Asia, in emerging markets such as Thailand,' Warut Siwasariyanon, director of research at Globlex Securities in Bangkok, told Bloomberg.
'Some global funds have problems with redemptions so they may have to raise liquidity to pay back shareholders.'
Asia shares may suffer further losses today if they were to take a cue from the Europe and US markets.
In Europe, stock markets suffered major losses yesterday, with London's FTSE closing 4 per cent down. On Wall Street, the Dow had dived more than 200 points by lunch time.
In the US, the VIX index - a measure of broad stock market volatility there - hit its highest level since March 2003 after the sharp sell-off on Wednesday.
Yesterday's blood-bath in Asia extended a bout of panic-selling around the world on Wednesday in anticipation of more bad news, as reports suggested investors in some hedge funds were preparing to make last-minute applications before an Aug 15 deadline to withdraw their money at the end of September, which would force the hedge funds to sell their investments to raise cash.
Several other hedge funds, including two run by US investment bank Bear Stearns, are already at risk of collapse after investors tried to withdraw their money but discovered that the underlying securities were nearly worthless.A US website, hf-im plode.com, set up by a private individual to track the number of hedge funds affected by the sub-prime mortgage crisis lists more than 20 hedge funds around the world that have publicly collapsed or are facing large losses from sub-prime mortgage exposure since May.
A sister website, ml-im plode.com, counts some 120 US mortgage lenders that have failed or fallen into financial distress since the end of last year.
In fact, the US Federal Reserve had planned to signal a future cut in interest rates - a move that would have cheered the markets - according to columnist Robert Novak. Fed chairman Ben Bernanke had initially prepared a statement hinting at such a cut, but eventually put the plan on hold.
Here, the Straits Times Index (STI) ended 121.09 points or 3.7 per cent lower at 3,152.16, after plunging as much as 5.2 per cent earlier in the day. The decline extended a 3.3 per cent loss on Wednesday.
In percentage terms, the plunge was the STI's steepest one-day fall since Feb 28 and the fourth time this month that the index has seen a decline of more than 3 per cent in a day.
Share indices in all other major Asia-Pacific markets also fell yesterday, with South Korea taking the worst beating. The Kospi Index dived 6.9 per cent, its biggest fall since June 2002.
This was followed by the Philippines and Indonesia, where major share indices plunged 6 per cent and 5.9 per cent respectively.
In Hong Kong, the Hang Seng Index fell 3.3 per cent, its second largest fall this year. Similarly, the Kuala Lumpur Composite Index slid 3.5 per cent, its sharpest fall since March. In China, the CSI 300 index slid 1.6 per cent, while shares in Thailand fell 3 per cent.
In Australia, local mortgage lender Rams Home Loans Group saw its shares plunge 36 per cent after it said it was unable to refinance some US$5 billion worth of short-term debt due to the lack of liquidity in the US credit market. Overall, shares ended 1.3 per cent lower in Sydney.
On Wednesday, shares in the US fell amid more signs of trouble stemming from sub-prime mortgage lending there. Countrywide Financial, the largest mortgage lender in the US with more than 50,000 employees, had its shares downgraded from 'buy' to 'sell' by brokerage Merrill Lynch, which warned that the firm may face bankruptcy if it is forced by creditors to sell off its assets at a fraction of their original value.
Meanwhile, regulators have started to turn the heat up on major credit ratings agencies such as Moody's and Standard & Poor's, which have come under fire over their perceived delays in downgrading the credit ratings of financial securities backed by the high-risk sub-prime mortgages. Yesterday, reports out of Europe said the credit ratings agencies are now facing an investigation by the European Commission.Since last week, central banks around the world have poured billions of dollars in additional funds into the global financial system in an effort to stave off a looming credit crunch as banks become less willing to lend money and investors shy away from new debt issues. But analysts expect the volatility in the financial markets to continue for now.
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