Sub-Prime Woes Push STI To 4-Month Low

Source : The Business Times, August 16, 2007

Banks lead decline in index's 6th triple-digit loss this year; other regional bourses hit too

(SINGAPORE) Regional stocks were yesterday swept under by US sub-prime mortgage and other related worries for the third time this month, resulting in the Straits Times Index (STI) suffering its sixth triple-digit loss of 2007, taking it to a four-month low. With Wall Street firmly in the grip of the sellers and the S&P 500 Index on Tuesday falling to within a hair's breadth of dropping into negative territory for 2007, yesterday's selling was relentless - Hong Kong's Hang Seng Index dived 632 points or 2.9 per cent and the Jakarta Composite crashed 140 points or 6.4 per cent to 2,029.

In addition, the futures market for benchmark US indices traded in the red during Asian trading hours, suggesting more turmoil ahead for Wall Street.

Not surprisingly, the ST Index stood little chance, eventually plunging 113.34 or 3.4 per cent to 3,273.25, the lowest since early April.

Its previous five triple-digit losses came on Feb 27 (128 points), March 14 (105), April 19 (109), Aug 1 (116) and Aug 6 (127). Of these, three were US sub-prime-related while the other two were China-induced.

Banks led the decline yesterday, despite disclosures by all three local banks last week of insignificant exposure to the US sub-prime market via collateralised debt obligations (CDOs).

US wire reports said Tuesday's plunge on Wall Street came after weak results reported by retailers Home Depot and Wal-Mart, and after fund managers Sentinel Investment fuelled the sub-prime worry by telling clients it wants to stop investors from withdrawing their cash to avoid forced liquidation.

As a result, European markets plunged on Tuesday in tandem with the US and opened weaker yesterday.

'All markets are very nervous and on heightened alert for the next negative sub-prime development,' said a dealer.

Local broker CIMB said in an Aug 14 report that although the worst is not yet over, Asia is unlikely to suffer a sub-prime contagion effect because, among other reasons, the banking system is strong and well capitalised.

In addition, it said Asian economies have become more resilient to external shocks and central banks have improved their regulation of high-leveraged activities.

Global markets have been sliding for the past three weeks on concern that increasing mortgage delinquency in a collapsing US property market might derail the financial sector. Specifically, concerns centre on the sub-prime mortgage segment, or loans made to borrowers of lower credit quality.