Asian Markets Crash While US Totters - Recession Fears Hit Home In Plunges Reminiscent Of Post-9/11 Debacle

Source : The Business Times, January 22, 2008

It was blood on the floor across Asian bourses yesterday as investors dumped stocks amid intensifying fears of a US economic meltdown.

This, despite President George W Bush last week announcing a massive US$145 billion stimulative tax relief plan and Federal Reserve boss Ben Bernanke stating that more interest rate cuts were in the works.

But all this fell on deaf ears of panic-stricken investors.

The result: a series of institutional programme selling and waves of margin calls which resulted in the most intense one-day rout across Asian bourses in recent memory.

Singapore’s recently revamped Straits Times Index (STI) plunged a massive 6.03 per cent to end at its lowest levels since March 2007 at 2,917.15 points as bellwether stocks and blue chips took a beating. It was its steepest single-day fall since the September 2001 New York bombings, when it had fallen 7.47 per cent.

In Hong Kong, the Hang Seng also posted its worst one-day fall since the same tragedy, as it plunged 5.49 per cent to 23,818.86 - its lowest close since last September. And in Tokyo, the Nikkei 225 sank 3.86 per cent to 13,325.94, while Mumbai’s BSE Sensex 30 plunged 7.41 per cent to 17,605.35 points.

The same depressing scenario was played out in Seoul, Kuala Lumpur, Jakarta, Sydney and elsewhere.

And as Asian investors licked their wounds after a massive beating, European bourses started the day in similar vein in negative territory.

Analysts attributed the selldown to intensifying fears of a US economic recession, brought about by knock-on factors from the widening sub-prime crisis.

That had prompted President Bush to unveil his US$145 billion tax plan over the weekend - which many had hoped would help calm nerves and stabilise markets.

‘Letting Americans keep more of their money should increase consumer spending,’ he declared.

But many in the market now say the plan was too little, too late.

‘We are just seeing the beginnings of what could be a downward spiral which could take months to flatten out,’ said a European fund manager who spoke anonymously on account of the bank’s internal compliance requirements. ‘The real crunch-time could come some time during the middle of this year, when the US adjustable rate mortgages come up for review. That could hit the wider US housing market, especially if banks start tightening up.’

Others noted that this was a long overdue correction, with the markets having largely recovered in November and December, after being hit last July and August.

And even while the US economy comes into focus, new fears are emerging about a massive economic slowdown in the euro- zone, no thanks to a sharp appreciation in the euro which is already hurting exports.

Meanwhile in China, there are fears that Chinese banks which have until now remained largely silent about their sub-prime exposure could now start unveiling losses. Some market insiders reckon large players like Bank of China have substantial exposure, which could come to light in the coming weeks.

Meanwhile, the flight to cash has already started across Asian markets and looks likely to continue for the foreseeable future.