Asian Markets Slump For Second Day

Source : TODAY, Wednesday, January 23, 2008

Investors may emerge to pick up bargains following US rate cut

INVESTORS across Asia stared in disbelief as stock markets yesterday haemorrhaged for a second day running on fears that a recession in the United States might plunge the world into its worst financial crisis in decades.












The fears prompted the US Federal Reserve to slash its federal funds rate target by 0.75 percentage point to 3.5 per cent in an emergency move to forestall the world’s largest economy from sliding into recession.

Billionaire investor George Soros said the world was facing the worst financial crisis since World War II and the US was threatened with recession.

In an interview published by the Austrian daily Standard yesterday, Mr Soros said that in recent years, politics has been guided by misunderstandings stemming from what he called “market fundamentalism” - the belief that free and unfettered markets provide the greatest possible equity and prosperity and that any interference will diminish social well-being.

The stock market rout was sparked off after US President George W Bush’s proposed US$145-billion ($208-billion) fiscal stimulus package, announced last Friday, failed to placate nervous investors. Investors were not convinced that the measures, largely consisting of tax cuts, will stimulate enough spending to avert a recession in the US, which in turn would weigh on the rest of the world.

Monday saw many global stock indexes suffer their biggest one-day slump since the Sept 11, 2001 terrorist attacks in the US, and any hope of bargain hunters emerging to curtail the slide quickly evaporated yesterday as selling momentum continued to overwhelm Asian markets.

“Most of your gains you make in a year, you lose in one day. If you’re caught in the market, you lose your pants. Now, cash is king,” said Mr Robin Lim, 43, a seafood trader in Singapore.

In Singapore, the ST Index fell 50.6 points, or 1.7 per cent, to close at 2,866.55 yesterday. This followed a 6-per-cent plunge on Monday. “Singapore’s economy is extremely tied to the US,” said Mr Tan Teng Boo, who helps manage US$300 million at i-Capital Global Fund.

But following the US rate cut, some investors may emerge to pick up bargains after valuations fell more than 17 per cent since the start of the year.

Japan’s Nikkei-225 index yesterday plunged a further 5.7 per cent to 12,573.05, marking a decline of 17.9 per cent in the benchmark for the world’s second-largest economy since the start of the year.

In China, the Shanghai Composite Index ended yesterday down 7.2 per cent at 4,559.75. Adding to the selling pressure were fears that the Bank of China (BOC) might announce a large writedown on its US$8-billion portfolio of US sub-prime mortgage securities.

But the BOC said after the market closed that it expected after-tax profit for fiscal year 2007 to rise from the previous year, after considering a provision for the sub-prime portfolio.

But amid all the panic in the last two days, there are fundamental factors to consider.

Citigroup Investment Research analyst Elaine Chu noted that total outflows from Asian funds, from mid-December to last week, have only been US$3.4 billion. That’s smaller than the outflows during market corrections in the summer of 2006 and March last year, she noted. - Agencies