Asian Markets Slump in Thursday Trading

Asian Markets Slump in Thursday Trading

http://www.nytimes.com/reuters/business/16wire-asia.html?ei=5088&en=b4c7450aac8587f2&ex=1344916800&partner=rssnyt&emc=rss&pagewanted=print

August 15, 2007
By REUTERS

HONG KONG, Aug 16 (Reuters) - Asian stocks tumbled on Thursday, heading for their biggest daily fall since the attacks on the United States in Sept. 2001 as persistent fears about a global credit squeeze sapped investor appetite for risky assets.

The yen jumped to five month highs as currency carry trades were unwound, while emerging market bonds, stocks and currencies were dumped in favour of safe-haven government bonds.

With no signs of credit jitters letting up, some central banks in the region stepped in again to reassure credit markets.

Australia added a larger-than-usual amount of $2.5 billion in cash to the banking system, while South Korea said it would take all possible measures to stablise domestic financial markets. and

The latest scare was set off by worries that Countrywide Financial (NYSE:CFC) , the largest U.S. mortgage lender, could face bankruptcy if liquidity worsens after a Merrill Lynch (OOTC:MERIZ) analyst flagged that possibility.

"The subprime issue will probably take months to play out so trading is going to be very nervous for a while," said Eric Betts, equities strategist at Nomura Australia.

"Anyone who has a financial interest, like a bank or a fund, may have some unexploded mines waiting to go off, so people are bailing out ahead of time."

MSCI's measure of Asia Pacific stocks excluding Japan fell 5.5 percent to four-month lows by 0350 GMT while Tokyo's Nikkei average was down 3.5 percent to levels last seen in late November.

The MSCI index is down more than 16 percent from the July 24 record high, but is still up about 5 percent for the year.

South Korea's KOSPI skidded 6.4 percent as the market played catch-up to the region's tumble after a holiday on Wednesday.

Japan's Nikkei and Australia's S&P/ASX 200 index have both wiped out gains for this year.

FINANCIALS BATTERED AGAIN

Investors continued to dump financial stocks, pushing South Korea's top lender Kookmin Bank (NYSE:KB) down 3.2 percent and Japan's Mitsubishi UFJ (OOTC:MBFJF) (OOTC:MIFJF) down 5.6 percent. Australia's Macquarie Bank shed 7 percent.

Investors are probably selling on sentiment rather than valuations, said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities in Japan.

"The fall in financial shares seems too extreme. Some investors are obviously selling to make money as Japanese megabanks have already disclosed their exposure to the U.S. subprime market," he said.

Worries that the credit problems will hurt global economic growth also weighed on exporters such as Samsung Electronics and mining giant BHP Billiton (NYSE:BHP) , sending both shares down more than 3 percent.

Japanese exporters including Honda Motor and Canon Inc. (NYSE:CAJ) were further pressured by a stronger yen, which can hurt the value of overseas sales.

RISK APPETITE HIT

Heightened risk aversion propelled the yen to a near five month high against the dollar and euro as investors who had borrowed the low-interest rate currency to buy riskier but higher yielding assets continued to unwind their positions.

The dollar slipped towards 116.10 yen a level last seen in mid-March, while the euro dipped below 156 yen

The single currency also fell against the dollar, reaching near two-month lows below $1.3400.

"From a technical point of view, the market has moved so much already. But there is no prospect of a reversal of current moves given that credit jitters are still spooking markets," said Hideki Amikura, a forex manager at Nomura Trust and Banking.

Growing doubts that the Bank of Japan will lift interest rates any time soon amid the market turmoil helped shore up Japanese government bonds.

The 10-year futures hit a five-month high, while the 10-year cash yield briefly dipped to a near three-month low of 1.63 percent.

Reflecting heightened risk aversion towards emerging market assets, spreads of emerging market sovereign bonds over U.S. Treasuries an important measure of risk appetite, widened by 3 basis points (bps) to 225, following an overnight 7 bps widening.

Analysts said much of the illiquidity in markets and the wide bid-ask spreads were related to the unpredictable impact of the U.S. subprime mortgage crisis.

"There is a lot about the current credit crunch that markets just don't understand. It's going to take weeks, maybe months, until there is a level of clarity in the markets which will allow for more concrete investment decisions," said Rob Gvozden, head of credit strategy for non-Japan Asia at Barclays (NYSE:BCS) Capital.

Gold traditionally a safe-haven investment in times of turmoil, has fallen since the equity market sell-off began but has avoided the worst of the carnage, down about 4 percent from its late-July highs. It traded around $666 an ounce.

London Brent crude fell 66 cents to $70.98 a barrel, unwinding overnight gains on signs that a major storm brewing in the Atlantic might not endanger Gulf of Mexico oil platforms.