Worries Over US Housing Slump Impact Drag Down Asian Stocks

Source : The Business Times, July 26, 2008

Banks and property stocks drive STI lower, but for the week, index is still up 2.6%

STOCKS here and elsewhere in Asia tumbled yesterday after steep losses in the United States overnight amid renewed worries over the impact of the US housing slump on banks and the wider financial sector.

The Straits Times Index (STI) ended 55 points or 1.8 per cent lower at 2,922.91, after falling as much as 2.2 per cent earlier in the day.

For the week, the index is still up 2.6 per cent, after big gains on Monday and Wednesday.

Banks and property stocks drove the STI lower yesterday, a day after the Monetary Authority of Singapore raised its forecast range for inflation this year to 6-7 per cent, from 5-6 per cent previously.

Higher inflation can trigger a repricing of stocks, especially if investors believe that the policy response - a stronger local currency or higher interest rates - may result in slower economic growth.

Data released in the US on Thursday showing that sales of existing homes in June fell to their lowest level in a decade prompted a sharp fall in major US stock indices.

Worries over the impact of the US housing slump on the broader financial sector extended into Asia-Pacific markets yesterday.

In Australia, the main stock benchmark fell 3.4 per cent after National Australia Bank shocked investors by announcing that it would set aside a further A$830 million (S$1.08 billion) to cover potential losses from its exposure to US mortgages.

The news dragged down banking and other financial sector stocks throughout the region.

Here, DBS Group, the largest of the three banks listed here by loans book, was the main stock driving the STI lower, falling 1.9 per cent to $19.38. United Overseas Bank, the second-biggest lender, declined 1.5 per cent to $19.08, while OCBC Bank ended 1.3 per cent lower at $8.35.

The two biggest local developers, CapitaLand and City Developments, also weighed on the index. CapitaLand fell 3.1 per cent to $5.91, while CityDev finished 3.4 per cent down at $11.50.

Of the STI's 30 component stocks, 27 fell, one rose and two were unchanged. Jardine Cycle & Carriage, a conglomerate with major car distribution businesses and other holdings in South-east Asia, was the only gainer, rising 0.4 per cent to $17.10.

Yanlord Land, a Chinese property developer, was the worst performer among the index members in percentage terms, followed by shipping group Neptune Orient Lines (NOL). Yanlord fell 6.1 per cent to $2, while NOL slid 4.8 per cent to $3.15.

In the broad market, losers outnumbered gainers by 242-108, with 487 counters unchanged, excluding warrants and bonds.

Trading volume was lower than on Thursday, with 835 million units worth $1.06 billion changing hands, including warrants and bonds but excluding shares traded in foreign currencies.

The FTSE ST All-Share Index, which tracks 270 of the most liquid stocks listed here, fell 1.6 per cent. But the UOB Catalist index of stocks on the second board ended 1.2 per cent higher, as penny stocks such as Junma Tyre Cord Co, Sapphire Corp and Medi-Flex rose 40-50 per cent on thin trading volumes.

Elsewhere in the region, major share indices fell, except in Malaysia, where the Kuala Lumpur Composite Index ended flat. In Japan, the Nikkei-225 index slid 2 per cent, while Hong Kong's Hang Seng Index finished 1.5 per cent lower.