Subprime Contagion Spreads to Asia

123jump.com Staff
01 Aug, 2007
New York City

Losses in banking sector in Tokyo trading left Nikkei 225 2.2% lower at the close. The other Asian markets suffered more. Taiwan, India, and Korea dropped 4% on the subprime worries. The Macquarie Bank in Australia plunged 10% dragging the Australian market down 3.2%. Mizuho Group in Tokyo declined 9% on 49% decline in earnings. Mitsubishi UFJ Group fell 4.6% on 31% decline in income.

[R]7:00AM New York, 8:00PM Tokyo – Widening net of subprime contagion drag Asian markets sharply lower.[/R]

What first appeared in the U.S. is now quickly spreading to Asia and Europe. The subprime contagion.

Nikkei 225 Index fell 2.2% or 377.91 to 16,870.98 on weakness in financial stocks across the region. Of the 1,686 traded in the first-section, for every rising stock seven stocks fell. All markets in Asia fell and the most of them declined between 3% and 4%.

The yen in trading against international currencies gained on the possible fall out to the carry trade investment mechanisms. The yen dipped below 118 from near 119 to a dollar.

Taiwan, Korea, and India fell nearly 4% and led the region. Hong Kong, Australia, Singapore, Thailand declined 3%, and Philippines lost more than 2%.

Mizuho Group plunged 9% after reporting 49.5% decline in first quarter profit. The net income fell to 116 billion yen on 22% rise to 1.05 trillion in ordinary income. The banking group, one of the largest in the country, led other bank stocks to decline between 4% and 5%. Lower income and dividend from investment in equities and other investments dragged the higher ordinary income from loans and deposits income. The news contributed to the general worries related to subprime lending in the U.S., Europe, and Australia.

Mitsubishi UFJ Group reported first quarter earnings decline of 31% to 151 billion yen on 18% increase in ordinary income to 1.5 trillion yen. Higher net fees and trading commissions were dragged by lower net interest income for the group. After the news the stock fell 4.6% with a general decline in the bank stocks. The bank is able to pass on higher interest rates to its core customer base of small businesses and first time home buyers, which other banks are not able to do this easily. Market analysts hoped that recent hikes in interest rates will still benefit the bank earnings in the rest of the year more than other banks.

Idemistu Kosan, second largest oil refining company in Japan after Nippon Oil, fell 2.8% after reporting 74% decline in first quarter profit. The refiner reported 0.7% drop in the revenue largely on eroding demand for refined products. The company is increasing its exploration in the North Sea area and is spending more to widen its exploration activities. For the current fiscal year the company guided lower operating income by 31 billion yen to 109.0 billion yen according to its revised presentation on the company website.

Asian currencies declined after Macquarie Bank reported losses in funds investing in high yield securities. Macquarie loss in Australia and similar losses in Japan and recent fallout in subprime trading at Bear Stearns added to global jitters that left all averages in the region sharply lower.