Fears Dominate Asian Trading

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

Asian markets fell sharply on psychological reasons. The fears of subprime loan losses, economic slowdown in the U.S., and credit crunch in the U.S. mortgage market affected trading sentiment. The central banks in Japan, Australia, Singapore were forced to inject liquidity in the financial systems to stem the rising interest rates. Korea led the region with a loss of 4.2%. Australia, Hong Kong, and Philippines fell nearly 3%. Chinese trade surplus in July jumped 67%.

[R]8:30AM New York, 8:30 PM Hong Kong – Asian markets corrected sharply on weakness in European and New York markets.[/R]

Asian markets closed declined with heavy losses in Korea, Hong Kong, and Australia tracking lower markets in New York and Europe. Korea led the decliners in the region with a loss of 4.2% followed by 3.6% fall in Australia, 3% decrease in Philippines and Hong Kong, 2.7% fall in Taiwan, and 1.5% decline in India, Indonesia, and Singapore.

In Hong Kong trading stocks fell sharply largely on the market nervousness than on fundamentals. Daily turnover on the main board dropped to HK$65.5 billion from HK$ 85.2 billion and volume on GEM market was reported at HK$0.5 billion, a decline of 50% from the previous session. Hang Seng Index opened sharply lower and attempted several rebounds in the morning trading but failed to gain much ground. Banks led the decliners. HSBC dropped 2% and Bank of East Asia fell 3%.

China reported July trade surplus of $24.4 billion, 67% jump from a year ago, and declined from $26.9 billion from June. The elevated surplus is fueling sharp rise in bank deposits, real estate prices, and stock market valuations. The rising demand is also fueling inflation in energy and food prices above the target set by the central bank. The People’s Bank of China said that the broadest measure of money supply, M2, rose 18% in July. Outstanding local currency loans in the month surged 16.6% and deposits in the local currency increased 16%.

Shanghai Composite Index edged fractionally lower to close at 4,749.37, still near the record high.

In Sydney trading ASX 200 fell 222.50 or 3.6% to 5,965.20. Of the total 201 stocks in the index, 9 gained, 189 declined, and 3 remained unchanged.

Perilya Ltd led the stocks in the index with a fall of 13.6% followed by 10% loss in Compass Resources, Mincor Resource, and Monadelphous Group. PMP Ltd led the gainers in the index with a rise of 2.6% followed by 2.11% gain in Futuris Corp, 1.7% increase in City Pacific, and 1% rise in Boom Logistics.

The Reserve Bank of Australia added liquidity in the market to stem the rising interest rates and worries that credit crunch may stem economic growth. The global injection of liquidity in local markets was carried out by the Federal Reserve Bank in Washington, the European Central Bank in Europe, and Central Bank in Japan.

[R]7:00AM New York, 8:00PM Tokyo – Market indexes in Tokyo more than 2% as fears arising from credit worries in the U.S. spread to the Asian markets.[/R]

Nikkei 225 index plunged 406.51 or 2.37% to 16,764.09 at close with financial and brokerage stocks leading the decliners. Topix index dropped 2.96% to close at 1,633.93. Market turnover has reached peak level and today was no different. Daily turnover fell from 5.3 trillion yen to 4.5 trillion yen but still hovered at triple the daily average volume.

The Bank of Japan in a coordinated effort with other central banks in Australia, Europe and the U.S. added liquidity to the market by lending 1 trillion yen. The central bank lent money at 0.49% to fight the rising interest rate which had reached above 0.55%. Reserve Bank of Australia loaned A$5 billion to provide the liquidity in the market. In the overnight trading the European Central Bank and the Federal Reserve Bank in Washington added liquidity in the market to fight the rising interest rates and perceived credit crunch. Central Banks in Indonesia, Philippines, and South Korea expressed willingness to provide liquidity if needed.

According an analyst report cited by Nikkei News, nine largest Japanese financial groups have combined exposure to the U.S. subprime market of 1 trillion yen. The relatively light exposure in the Japanese banking system to the troubled mortgage market in the U.S. did not prevent investors selling stocks in droves.

Mizuho Financial Group, Nomura Holdings, and Shinsei Bank have confirmed exposure to the mortgage market in the U.S.

Of the 225 stocks in the index, 182 declined, 39 gained, and 4 were unchanged. Shinsei Bank led the stocks in the index with a loss of 10% followed by 9.2% decline in Nisshinbo Industries, and 9% fall in Mitsubishi Materials, Komatsu, and NSK Limited. Trading companies Itochu, Marubeni, and Mitsui fell 7% or more. Nippon Suisan led the stocks with a gain of 6% followed by 4% gain in Fast Retailing, and 3.5% rise in CSK Holdings.

Shipbuilding and shipping line operators were hit hard. Mitsui OSK, Sumitomo Osaka, Kawasaki Kisen Kaisha fell more than 4%.

Energy and metal stocks fell sharply in the sell-off in the market. Mitsubishi Materials plunged 9%, Nippon Soda, Nippon Mining, and Mitsui Chemicals dropped 7%, Toho Zinc lost 6%, and Nippon Steel declined 3%.

Trend Micro after surging for the each of three days in a row for 7% declined 2.5%.

Japan Tobacco fell 1.97% to 598,000 yen after rising in the previous. Japan Tobacco reported its first quarter sales of 1.2 trillion yen, a decline of 5.4% from a year ago and net income fell 15.2% to 64.4 billion yen. Domestic sales fell 13% but international sales rose 25.3% limiting the net profit decline. The company revised its sales forecast for the year to 6.41 trillion yen from 4.89 trillion yen and net income was revised to 256 billion yen from 186 billion yen.

Fast Retailing increased 4.2% after soaring 11% in the previous session on the news that the company plans to drop its bid for the U.S. based retailer Barneys New York.