Asian Market Selldown Expected After Dow Crash

Source : The Straits Times, Oct 22, 2007

Traders watching if HK cracks after Hang Seng's recent meteoric surge

TRADERS are bracing themselves for a beating when Asian markets open today as they recoil from Wall Street's third-biggest one-day plunge this year.
What they fear is a fresh spate of margin calls and forced-selling of shares as foreign fund managers rush to cut their exposure to the red-hot Asian markets to plug losses back home.

On Friday, the Dow Jones Industrial Average plunged 367 points, or 2.6 per cent, as record high oil prices, banking woes and slower corporate earnings revived fears of a recession in the United States and sent global financial markets into a tailspin.

The fall coincided with the 20th anniversary of the October 1987 crash on Wall Street - when the Dow plunged 23 per cent - and marked its worst selldown since August, when a mortgage crisis in the US sparked a global credit crunch and spooked market sentiment worldwide.

What dealers now fear is a selldown in Hong Kong, where the Hang Seng Index had climbed by nearly 50 per cent in the past two months after it attracted billions in hot money.

Any massive pullout by foreign funds in Hong Kong, which reopens today after a public holiday last Friday, may send other regional markets reeling as well.

In Singapore, sentiment will also be affected by the controversy over recently listed Uni-Asia Finance, after investors pressed the Singapore Exchange to investigate whether there was foul play behind the wild swings in the prices of its shares.

One market strategist said: 'It is very unfortunate that Uni-Asia should erupt at the same time as the slump in the Dow Jones Industrial Average. Just imagine what sort of reaction foreign funds will have as they read our local newspapers.'

Some traders are predicting that the benchmark Straits Times Index (STI) may dive by as much as 100 points initially, mirroring the falls during the August sell-off.

Indeed, even before Wall Street's plunge, the STI had already fallen 61.71 points to 3,747.98 on Friday, bringing its total fall for the week to 109 points, or 2.8 per cent.

Phillip Securities managing director Loh Hoon Sun said: 'There will be a selldown because investors will want to err on the cautious side and raise some cash.'

Given the big impact which the US economy has on the rest of the world, traders will be asking themselves if last Friday's plunge was merely a blip or a signal of something more fundamentally wrong, he said.

Still, the biggest concern is the red-hot Hong Kong market, where US investment bank Morgan Stanley last week warned of a 30 per cent correction in the next three months because valuations had become 'untenable'.

One trader said: 'So much hot money has been put into Hong Kong that it only takes a spark to ignite a panic selldown. Hedge funds may use Wall Street's fall as an excuse to short Hong Kong.'

But CIMB-GK research head Song Seng Wun is confident the market will take the 2.6 per cent correction on Wall Street in its stride.

'Investors will be looking at the selling here as an opportunity to hunt for bargains,' he said.