Asian Bourses Hit By Fresh Fears Of US Credit Crunch

Source : The Straits Times, Nov 3, 2007

Investors spooked by concerns that big Western banks may face losses; STI down 2.3%

ASIAN markets fell into a tailspin yesterday, a day after renewed fears over the health of the United States economy sparked a swoon on Wall Street.

Hong Kong led the falls, tumbling 1,024 points, or 3.25 per cent. Taiwan fell 3.39 per cent, while South Korea dropped 2.12 per cent.

Singapore managed to escape with flesh wounds. The Straits Times Index lost 88.24 points, or 2.3 per cent, to 3,715.32 - its biggest one-day fall in two weeks. About $11.7 billion was wiped off the value of shares.

The spark for Wall Street’s 364-point plunge on Thursday was a renewed worry that more credit-market turmoil was on the horizon.

That fear, plus the increasingly likely prospect of US$100-a-barrel oil, led to new concerns about the health of the American economy, and sent stocks diving.

Another factor: The US Federal Reserve’s signal on Wednesday - after it shaved interest rates by 0.25 percentage point - that it had no further rate cuts in mind to help ease the credit crunch.

The worries were eased somewhat late last night with the release of better-than-expected employment figures, but Wall St remained wary, losing over 100 points at press-time to reverse early gains from an upbeat start.

In Asia, investors were rattled by concerns that big Western banks have huge losses lurking on their balance sheets.

Singapore remisier Paul Lee said: ‘Share prices were still holding up pretty well at opening bell. Then all hell broke loose, and it was like knives falling all over the place, with nowhere to hide.’

Traders were taken aback by the sudden change in sentiment, given the optimism that infected the market after the Fed’s rate cut.

Market experts are divided over whether shares are headed for a further thrashing, given the mixed bag of data coming out of the US.

Phillip Securities’ managing director, Mr Loh Hoon Sun, said: ‘Because prices have gone up so much already, investors are very sensitive to any bad news, so this type of volatility will persist.’

The ignition for yesterday’s Wall Street sell-down was a 7 per cent plunge in Citigroup after an analyst warned that the banking giant might have to cut dividend or sell assets to raise capital.


That revived worries that US and European banks may have to unveil further write-offs linked to the US mortgage markets.

Asian banks felt the collateral damage. Some do have exposure to risky financial instruments known as collateralised debt obligations, but it is more the fear of the unknown that is spooking investors.

Local banks felt the pain, with DBS down 4.4 per cent and United Overseas Bank off 1.9 per cent.

Elsewhere, Japan’s Mitsubishi UFJ Financial Group lost 6 per cent, while in Hong Kong, Bank of China was down 2.5 per cent.

Given the heavy weightage given to financial stocks in most regional indexes, analysts warn that investors should brace themselves for more turmoil.

One concern expressed by many dealers is the large operations that these banks run in major financial centres such as Singapore and Hong Kong.

Said one analyst: ‘The fear is that they may stop enlarging operations in Asia and sound the retreat to cope with problems back home. This may cause our real estate prices to feel the pinch if they start chopping heads and cutting prime office space.’

JP Morgan Private Bank’s senior portfolio manager, Mr Elan Cohen, believes that while share prices will be ‘volatile for the next couple of days, it is not the beginning of a bear market’.

‘For regional markets that have risen so sharply this year, a 2 to 3 per cent correction is common.’