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US recession fears send Asian markets into a tailspin

STI, Hang Seng suffer big drops; bank and tech stocks, energy and base metal prices also hit

STOCK markets across Asia plummeted yesterday amid fears that a gathering financial storm in the United States might tip the global economy into a recession.

Hong Kong was the worst hit as the Hang Seng Index plunged an eye-popping 5.4 per cent, reflecting mainland fears that US consumers will buy fewer China exports.

Yesterday’s slide means Singapore and Hong Kong are now officially ‘bear’ markets, ending an unbroken five-year bull run, along with Tokyo, which went bearish on Jan 7. It means these markets are down 20 per cent or more from peaks in the last year.

In the US, the Dow Jones Industrial Index is down 12 per cent from its October highs.

When Asian markets opened yesterday, they were spooked by a double whammy of bad news from the US.

First, an US$18.1 billion (S$25.8 billion) write-down by financial giant Citigroup over the sub-prime mortgage crisis, then a 2.2 per cent slump in the Dow.

Jumpy investors in Singapore epitomised deepening gloom around Asia as they sent the Straits Times Index (STI) tumbling about 3 per cent at the opening bell. The STI regained about half its losses – only to slide again as the dramatic scale of Hong Kong’s losses became clear.

In its fifth straight day of losses, the STI ended down 96.09 points, or 3.05 per cent, at 3,058.49, its lowest level in 10 months.

The index is now down 20.1 per cent from its peak of 3,831 points on Oct 11. It is down 11.75 per cent for the year, its worst two-week year opening since 2000, after the bursting of the dot.com bubble.

Across Asia, bank stocks were badly hit over fears that other major US banks might unveil massive losses.

Technology stocks also skidded after US tech giant Intel posted disappointing quarterly sales and a cautious outlook for this year.

This suggests a possible slowdown in the key personal computer market, which accounts for major business among Asian manufacturers.

Worries over the health of the US economy also took their toll on the ailing greenback and accelerated its decline against regional currencies. It fell by 1.5 yen to a 32-month low of 106.09 yen.

Even energy and base metal prices took a direct hit from the prospects of a global economic slowdown.

Crude oil fell by US$2.30 to US$91.90 a barrel yesterday, while analysts said major steel producers were cutting back on production targets by as much as 30 per cent.

It all boiled down to a very grim trading session for investors.

‘What is scary is the rapid pace in which investors’ sentiment had soured in the past week,’ said remisier Bernie Lee in Singapore.

In Singapore, banks such as DBS Group Holdings and United Overseas Bank each fell by about 3 per cent.

In Hong Kong, HSBC, which gets about one-third of its revenues from North America, plunged 4.5 per cent.

Investors are now clamouring for the US central bank to announce an emergency interest-rate cut ahead of its next meeting at the end of this month.

‘The Fed is beyond the curve. We are not talking about sub-prime, but an increasing spate of loan and creditcard defaults in the US,’ said Mr Kevin Scully, managing director of corporate finance house NRA Capital.

But for long-term investors, the sell-down presented a good opportunity to buy shares at attractive prices, noted Mr Elan Cohen, JP Morgan Private Bank’s senior portfolio manager.

 

Source: The Straits Times 17 Jan 08

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