Asian Markets Fall on G7 Worries

123jump.com Staff
11 Feb, 2008
New York City

Financial markets in Asia fell sharply after a gloomy statement from the G7 Finance Ministers meeting in Tokyo. The dim view of the world economic outlook kept investors in Asia worried. India, Australia, and Hong Kong fell sharply. Banks in Hong Kong fell after Goldman Sachs lowered target prices. Hong Kong fell 3.6%, India lost nearly 5%, and Australia declined 2%. G7 ministers raised their estimate sub prime loan losses ten times to $400 billion from its earlier estimate in October 2007.

[R]6:00AM New York, 6:00PM Hong Kong- Asian markets fell sharply after a gloomy statement issued by G7 meeting of ministers and bankers.[/R]

Hong Kong stocks plummeted on the first day of trading after the Lunar New Year holiday on the latest statement by the G7 meeting of finance ministers and central bank governors. The statement took a dim view of the global economic outlook and noted that subprime loan losses in the U.S. may reach $400 billion.

Trading volumes were also thin as the markets in China were shut. Markets in Japan, Taiwan and Vietnam were closed today.

Market Sentiment

In Hong Kong trading the Hang Seng Index fell 3.6% or 853.35 to 22,616.11, and the China Enterprises index of H shares, or Hong Kong-listed shares in mainland companies, declined 4.11% at 12,530.60.

Daily turnover on main-board was HK$76.43 billion compared withTuesday''s HK$85.03 billion, the last full day of trading last week.

G-7 Finance Ministers and Bank Governors Statement

The G-7 Finance Ministers and Central Bank Governors said in a statement released on Saturday that the world economy is expected to slow down and emerging market economies are likely to grow at a slower pace.

The tone of the statement, since last statement issued on October 19, 2007, has changed considerably and takes a dimmer view of the world economy but appears to show a rift among ministers and bankers.

The G-7 also noted that financial institutions prompt disclosure of their losses based on proper valuations accompanied by measures to reinforce their capital base play an important role in reducing uncertainty, improving confidence and restoring the proper functioning of the financial markets.

On only one issue there appeared to be an agreement that banks must rebuild their balance sheets and must be encouraged to be transparent in declaring their losses from the leveraged and risky housing loans. German Finance Minister Peer Steinbruck said during a press conference after the meeting that there appeared to be agreement among members that the U.S. sub-prime loans related losses may reach $400 billion.

Global Equity Losses

The China Peoples Daily reported today that Standard & Poor’s said on Saturday global equity markets lost a cumulative $5.2 trillion in January as global financial turmoil persisted, with 50 of the 52 global equity markets ending the month in the negative territory.

Emerging markets fell 12.4% in the month, while developed markets lost 7.8%. In particular, stocks in the Asia-Pacific region dipped 7.5%, with markets in China plunging 21.4%.

New Legislation for Financial Institutions

The Peoples Daily Online also reported today that China Banking Regulatory Commission is developing ordinance of bankruptcy of banking and financial institutions in order to set up a market oriented bailout system.

Losers & Gainers

Financial stocks tumbled after Goldman Sachs slashed its target for China’s financial institutions by 21% and 31% on prevalent inflationary pressures on the domestic market and the global credit market crunch, which, according to the G-7 Finance Ministers and Central Bank Governors, still persist.

Banks are now due to report 2007 financial results. Bank of Communications slumped 6.02%, China Construction Bank shed 5.47%, Bank of East Asia plummeted 3.82% and Bank of China climbed down 4.43%.

Reuters news reported the Bank of East Asia fell after it said that chief executive and chairman of the bank David Li will continue with his duties after agreeing to pay a civil penalty of $8.1 million to the U.S. Securities and Exchange Commission for trading in shares in Dow Jones.

HSBC slipped 4.04 % to HK$109.30 on reports the bank will sell will sell 300 branches in France to refocus on emerging markets.

Oil companies also fell as well. Sinopec declined 4.22% to HK$8.40, PetroChina fell 4.49% and CNOOC slipped 6.45%.

Chalco declined 5.85% to HK$11.58 after parent company Chinalco expressed reluctance on raising its stake in Rio Tinto International.

Datang Power gained 1.89% to HK$5.40 on speculation it will capitalize on the current power shortages.

Earnings Update

Xinhua News Agency reported PetroChina had sales of Rmb655 million in non-oil business at its filling stations last year, adding that the company will ""achieve an overall increase in profitability by 2010"".

Separately, the online edition reported that carmaker Chery Automobile has set up a joint venture with Quantum LLC, a subsidiary of Tel Aviv listed Israel Corp. in order to tap markets in Europe and U.S.

Quantum spent $225 million for a 45% stake in the JV, while Chery will provide technology and land worth a controlling 55% stake.

Asian Markets

In Hong Kong Hang Seng index decreased 853.35 or 3.64% closed to 22,616.11. Australia ASX 200 index decreased 120.40 or 2.13% to close 5,537.60. Markets of Japan were closed today.

In South Korea Kospi Index decreased 55.90 or 3.29% to close at 1,640.67, in Thailand SET index closed lower 2.29 or 0.28% to 804.15 and Indonesia JSE Index edged decreased 49.71 or 1.88% to 2,589.38. Sensex index in India decreased 834.00 or 4.78% to 16,630.91.