Unless top firms bolster Wall Street’s performance, more dark days lie ahead for Asia
INVESTORS in Asia are bracing themselves for a bruising time today.
Following Wall Street’s dismal showing on the 20th anniversary of “Black Monday”, there are nagging suspicions about the health of the United States economy and how its weakness could hurt the rest of the world.
On Oct 19 — the very day back in 1987 that US markets nose-dived on panic selling — share prices plunged 2.6 per cent, clocking their biggest fall in two months.
The damage was nowhere near the 23-percent crash on the historic “Black Monday” when investors were spooked by an interest rate hike amid an ailing economy.
But a slew of poor corporate earnings report cards and a credit crunch sparked by lax mortgage practices, are building up talk about a possible recession. Worries that losses from the worst US housing slump since 1991 will spread, led Asian markets to post their biggest weekly drop in two months.
In Singapore, the index suffered its first retreat in nine weeks and more declines could follow, dealers told AFP, because of rising crude oil prices. As tensions in the Middle East caused oil futures to trade near all-time peaks of US$90 ($130) per barrel last week, investors here were getting jittery too. The Straits Times Index shed 2.8 per cent last Friday to close at 3,749 points.
While analysts do not foresee a crash a la 1987 on the horizon, “there’s an increased sense of nervousness in the market because we’re at an inflection point,” Mr Owen Fitzpatrick, Deutsche Bank head of US equities, told financial news provider MarketWatch.
“The main thing is the belated impact from housing on the economy … and the spillover from the credit crisis, which is still not over,” Barrington Research Analyst Alexander Paris was quoted as saying in the report.
When fresh US data about existing home sales is released on Wednesday, followed by a Thursday report on new home sales, pundits are expecting signs of a further decline in the housing market.
Heavyweight companies are also mentally preparing for not-as-pretty results. Last week, Caterpillar, a maker of construction equipment such as bulldozers, predicted a 12-per-cent drop in this year’s machinery and engine sales in the US. The company also reduced its full-year profit outlook to US$5.20-$5.60 per share, down from July’s anticipation of US$5.30-$5.80.
Mr Dave Burritt, Caterpillar chief financial officer, told Reuters he saw a 50-percent chance of a US recession.
The pessimistic outlook came shortly after a string of big lenders, including Citigroup and JP Morgan, reported that defaults had eaten into their profits this quarter. The combined earnings of America’s five biggest banks for the quarter, which came to US$18.7 billion, is the lowest in nearly four years, according to Bloomberg.
“Right now, financial stocks are like radioactive waste,” Mr Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles, told Bloomberg. “People just do not want to touch them.”
Unfortunately, staying away from financial stocks means shunning companies that, according to Bloomberg, produced 27 per cent of the profits of the Standard & Poor 500 Index last quarter.
On the other hand, there remains a bunch of companies that Wall Street is still hanging its hopes on. Apple, Amazon.com and pharmaceutical group Bristol Myers Squibb are among those posting their quarterly results this week. Some rosy numbers
are expected, but all eyes will be on the outlooks of these companies.
If they do not spring a dampener like Caterpillar did, investors will probably heave a sigh of relief. Otherwise, more dark days may be ahead for Asia, too, say analysts.
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