Tokyo, Asian Markets Rally

123jump.com Staff
08 Sep, 2008
New York City

Stocks in Japan rallied as markets in Asia closed sharply higher. On Sunday the U.S. Treasury seized the troubled mortgage lenders, Fannie Mae and Freddie Mac and guaranteed to provide liquidity of $200 billion. Common shareholders stake will be wiped out and the fate of the preferred stock holders is not clear. The move highlights the extent of the problem in the U.S. financial system that has wreaked havoc around the world as global financial markets have lost $16 trillion of value.

[R]5:00AM New York, 7:00PM Tokyo – Japan stocks rallied after the U.S. bails out two troubled mortgage lenders. Real estate bankruptcies increase 23.5% in August.[/R]

Stocks in Japan rose markedly buoyed by news that the U.S. Treasury has taken over the control of mortgage lenders Fannie Mae and Freddie Mac, which guarantee three quarters of new home mortgages.

Market Sentiment

In Tokyo trading Nikkei 225 rose 3.38% or 412.23 to 12,624.46, and the broader Topix Index increased 3.9% or 45.57 to 1,216.41.

In the first section of the Tokyo Stock Exchange 9.6 billion shares worth 1 trillion yen were traded and in the second section 259 million shares valued at 2.6 billion yen changed hands.

Of the Nikkei 225 stocks 201 rose, 21 declined, and 3 were unchanged. Sumitomo Trust & Banking led advancers in the index shares with a rise of 17.04% on strong market sentiment in the financial services sector.

Real Estate Bankruptcies Rise 23.5% in August

Tokyo Shoko Research Ltd report showed that the number of real estate companies filing for bankruptcy protection rose 23.5% in August from the same period a year earlier, as banks tightened lending. Also, liabilities at failed real estate companies surged to 438.9 billion yen from the previous month, but dropped 24.9% year-on-year. The news was first reported by Bloomberg News.

Daiwa House Industry contends that the number of real estate companies filing for bankruptcies is likely to grow this year as conditions in the economy continue to deteriorate.

Separately, the Bank of Japan reported today that loan growth to Japanese companies slowed for the second consecutive month to 2% to 3.9 trillion yen in August.

U.S. Nationalizes Fannie and Freddie

The U.S. Treasury together with the Federal Finance Agency, with the support of the U.S. Federal Reserve took over the control of two largest mortgage lenders Freddie Mac and Fannie Mae- financial companies that provide funding for three quarters of the new home mortgages.

Under the new arrangement, the two financial institution’s chief executives will be replaced and the Treasury will provide $200 billion in capital support. By putting the two companies under conservatorship, the Treasury effectively gives management control to the Federal Finance Agency, the regulator. The U.S. Treasury has not injected immediate capital in the companies and will purchase $1 billion of preferred stocks from each of the lender to provide the financial guarantees.

Pacific Metals, Hitachi Construct to Include in Nikkei Average

Reuters News reported on its Web site that Japanese publisher Nikkei said today that it will include Pacific Metals and Hitachi Construction to the Nikkei 225 index effective of October 1. The index will drop Kumagai Gumi and Toagosei.

Gainers & Losers

Sumitomo Trust & Banking led advancers in the Nikkei 225 index shares with a rise of 17.04% followed by increases in Sumitomo Mitsui Financial Group of 15.21%, in Chuo Mitsui Trust of 14.79%, in Bank of Yokohama of 14.23%, and Tokyu Land Corp. of 13.02%.

Financial stocks rose after the U.S. Treasury took over Freddie Mac and Fannie Mae. Mizuho Financial Group increased 12.31%, Mizuho Trust & Banking rose 11.97%, Chiba Bank advanced 12.48%, and Shinsei Bank gained 12.35%.

Nippon Paper Group led decliners in the Nikkei 225 index shares with a fall of 2.95% followed by losses in Tokyo Electric Power of 2.90%, in Sumitomo Chemical Co. of 2.45%, in Tokyo Gas Co. Ltd of 2.12%, and Chubu Electric Power of 2.08%.

Paper companies and utilities fell after crude oil prices for October delivery gained 2.6% to $108.95 a barrel as Hurricane Ike delayed the resumption of production in the Gulf of Mexico.

Kansai Electric Power plunged 1.31% and Bridgestone lost 0.55% as a result.