Shares in Asia, Europe fall as gloom returns to markets
By CONRAD TAN 16 October 2008
(SINGAPORE) Stocks in most of Asia and Europe slumped yesterday as the relief rally earlier in the week fizzled out, giving way to worries over the worsening economic outlook.
Analysts say much of the damage to the global economy has already been done, although the sweeping government bailouts of banks in Europe and the United States over the past few days have prevented a complete collapse of the financial sector.
‘We’re all hoping it can be a quick rebound, but I don’t think it can be,’ said Kevin Scully, who heads NetResearch Asia, an independent equity research firm here. ‘If you look at the US market, as the economy goes into recession and unemployment rises, property prices will continue to fall. So banks will continue to report losses on their loans.
‘I don’t see any reason for the rally and it’s proved to be a non-event.’
The Straits Times Index finished 3.2 per cent lower at 2,059.39 points, after falling as much as 4.3 per cent earlier, snapping a two-day rally that saw the Singapore stock benchmark rise 9.2 per cent. Hong Kong’s Hang Seng Index fell 5 per cent, after gaining 13.8 per cent earlier in the week.
On Tuesday, US equities ended lower after a sharp rally on Monday, as investors shifted their focus from the crisis of confidence that paralysed the financial sector to the economic recession ahead.
Japan’s Nikkei-225 index was the only major benchmark to end higher yesterday, finishing 1.1 per cent up after reversing a 1.9 per cent fall earlier. All other major share indices in Asia ended lower, except in Vietnam where the main stock benchmark rose 2 per cent.
In New York yesterday, the Dow Jones index fell 291.59 to 9,019.40 at midday on bleak economic data pointing to a recession. European shares fell in tandem, with all major equity indices down. The UK’s FTSE-100 stock benchmark ended more than 7 per cent lower.
Interbank lending rates in Asia and Europe eased for the third straight day, suggesting that the concerted efforts by governments worldwide to restore confidence in the banking system may finally be working. But indices tracking credit-default swap spreads - a measure of the perceived risk of debt defaults by big companies or governments - rose slightly, after falling earlier in the week.
The Singapore dollar fell yesterday against the US dollar, after strengthening earlier in the week.
The US is headed for its worst recession in four decades - one that could last up to two years, Nouriel Roubini, chairman of consulting firm RGE Monitor and a professor of economics at New York University, told Bloomberg in a television interview.
‘US$250 billion is not going to be enough’ to recapitalise the US banking system, relative to the losses that banks face, he said. The US government will probably need to inject twice the sum committed so far to stabilise the financial sector, he added. Insolvent banks will also need to be shut quickly.
Writing on the RGE Monitor website, he said that ‘most of the economic and financial damage is already done and the global economy will not be able to avoid a painful recession’.
Meanwhile, Asean countries have agreed to set up a multibillion-dollar standby fund to buy soured debt assets from banks in the region or inject cash into companies badly in need of capital if necessary, said Philippines President Gloria Arroyo yesterday, according to Reuters.
The World Bank has committed an initial US$10 billion to the fund, while other details of the plan are still being discussed, she added. ‘The facility can be used to purchase what the bankers call toxic assets and recapitalise troubled financial institutions and private companies,’ she said in Manila.
Mr Scully said that the ST Index could plunge to as low as 1,200 points if companies here report weak third-quarter earnings and a poor business outlook.
‘Into the Q3, Q4 reporting season, I think the forward guidance will be poor, as the effects of the recession kick in.
‘I think stocks will continue to fall everywhere.’
The problems at steel maker Ferrochina and textile firm China Printing & Dyeing - both of which have been suspended from trading - are signs that the severe distress in credit markets is threatening all types of businesses here, he said. ‘They can’t borrow money from the banks, so they can’t get their working capital.’
‘This is a serious problem and it’s going to hit all companies, because banks are going to be very scared to lend.
‘We need to fix this, or else business is going to grind to a halt,’ he said.
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Relief Rally in Stocks Fizzles Out
Shares in Asia, Europe fall as gloom returns to markets
By CONRAD TAN
16 October 2008
(SINGAPORE) Stocks in most of Asia and Europe slumped yesterday as the relief rally earlier in the week fizzled out, giving way to worries over the worsening economic outlook.
Analysts say much of the damage to the global economy has already been done, although the sweeping government bailouts of banks in Europe and the United States over the past few days have prevented a complete collapse of the financial sector.
‘We’re all hoping it can be a quick rebound, but I don’t think it can be,’ said Kevin Scully, who heads NetResearch Asia, an independent equity research firm here. ‘If you look at the US market, as the economy goes into recession and unemployment rises, property prices will continue to fall. So banks will continue to report losses on their loans.
‘I don’t see any reason for the rally and it’s proved to be a non-event.’
The Straits Times Index finished 3.2 per cent lower at 2,059.39 points, after falling as much as 4.3 per cent earlier, snapping a two-day rally that saw the Singapore stock benchmark rise 9.2 per cent. Hong Kong’s Hang Seng Index fell 5 per cent, after gaining 13.8 per cent earlier in the week.
On Tuesday, US equities ended lower after a sharp rally on Monday, as investors shifted their focus from the crisis of confidence that paralysed the financial sector to the economic recession ahead.
Japan’s Nikkei-225 index was the only major benchmark to end higher yesterday, finishing 1.1 per cent up after reversing a 1.9 per cent fall earlier. All other major share indices in Asia ended lower, except in Vietnam where the main stock benchmark rose 2 per cent.
In New York yesterday, the Dow Jones index fell 291.59 to 9,019.40 at midday on bleak economic data pointing to a recession. European shares fell in tandem, with all major equity indices down. The UK’s FTSE-100 stock benchmark ended more than 7 per cent lower.
Interbank lending rates in Asia and Europe eased for the third straight day, suggesting that the concerted efforts by governments worldwide to restore confidence in the banking system may finally be working. But indices tracking credit-default swap spreads - a measure of the perceived risk of debt defaults by big companies or governments - rose slightly, after falling earlier in the week.
The Singapore dollar fell yesterday against the US dollar, after strengthening earlier in the week.
The US is headed for its worst recession in four decades - one that could last up to two years, Nouriel Roubini, chairman of consulting firm RGE Monitor and a professor of economics at New York University, told Bloomberg in a television interview.
‘US$250 billion is not going to be enough’ to recapitalise the US banking system, relative to the losses that banks face, he said. The US government will probably need to inject twice the sum committed so far to stabilise the financial sector, he added. Insolvent banks will also need to be shut quickly.
Writing on the RGE Monitor website, he said that ‘most of the economic and financial damage is already done and the global economy will not be able to avoid a painful recession’.
Meanwhile, Asean countries have agreed to set up a multibillion-dollar standby fund to buy soured debt assets from banks in the region or inject cash into companies badly in need of capital if necessary, said Philippines President Gloria Arroyo yesterday, according to Reuters.
The World Bank has committed an initial US$10 billion to the fund, while other details of the plan are still being discussed, she added. ‘The facility can be used to purchase what the bankers call toxic assets and recapitalise troubled financial institutions and private companies,’ she said in Manila.
Mr Scully said that the ST Index could plunge to as low as 1,200 points if companies here report weak third-quarter earnings and a poor business outlook.
‘Into the Q3, Q4 reporting season, I think the forward guidance will be poor, as the effects of the recession kick in.
‘I think stocks will continue to fall everywhere.’
The problems at steel maker Ferrochina and textile firm China Printing & Dyeing - both of which have been suspended from trading - are signs that the severe distress in credit markets is threatening all types of businesses here, he said. ‘They can’t borrow money from the banks, so they can’t get their working capital.’
‘This is a serious problem and it’s going to hit all companies, because banks are going to be very scared to lend.
‘We need to fix this, or else business is going to grind to a halt,’ he said.
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