Commodity, financial stocks in Asia, Europe tumble as global outlook gets bleaker; STI dives 5.6% to 3-year low
By CONRAD TAN 7 October 2008
Stocks in Asia and Europe were savaged yesterday as the banking crisis in Europe deepened and credit channels crucial to the normal functioning of financial markets and economic activity stayed blocked.
Banks and other financial-sector stocks went into free-fall, joined by shares in major exporters and commodity-related stocks, which tumbled on fears that the world’s biggest economies are tipping into recession. Just two days after it was passed the US$700 billion bailout package that was expected to bring some relief to the markets already seems a distant memory. The fear is now spreading to Asia via Europe, whose leaders seem unable to agree on a banking rescue scheme.
The Straits Times Index suffered its biggest one-day fall in percentage terms since January, ending 5.6 per cent lower at 2,168.32.
Shares in Sembcorp Marine and Keppel Corp, the world’s biggest oil-rig builders, plunged 13.5 per cent and 9.1 per cent respectively, as crude oil prices fell below US$90 a barrel for the first time since February.
Other commodity-related stocks listed here, such as Wilmar International, Noble Group and Olam International, were also mauled, ending more than 12 per cent lower.
The Singapore stock benchmark is down 37.4 per cent this year. Yesterday was the lowest closing value for the index since Nov 15, 2005, which means the turmoil in financial markets has erased almost three years of its gains.
In Hong Kong, the Hang Seng Index finished 5 per cent lower, while Japan’s Nikkei-225 index sank 4.3 per cent.
Mitsubishi UFJ Financial Group and Mizuho Financial Group, two of Japan’s biggest banks, fell more than 7 per cent.
Indonesia’s main stock benchmark dived 10 per cent, the biggest loss in Asia.
Stock markets in Europe opened sharply lower, with major equity indices slumping more than 5 per cent in early trading, dragged down by sharp falls in banking stocks. Britain’s blue chips saw £pounds;60 billion (S$153 billion) of value wiped out in the first six minutes of trading.
In Russia, trading was halted after the benchmark Micex Index plummeted 15 per cent. It resumed trading later and fell further to close 19.1 per cent lower.
The steady drumbeat of bad news last week continued late on Sunday, when Germany’s government guaranteed all private-account deposits at German banks to stave off a panic after a rescue plan for Hypo Real Estate, a big mortgage lender, collapsed.
Although US lawmakers passed a US$700 billion package of proposals to save the financial sector on Friday, analysts say the measures won’t be enough to halt the American economy’s slide into recession.
On Sunday, Finance Minister Tharman Shanmugaratnam warned that Singapore is facing an economic slowdown ‘that will last not just one or two quarters, but may last several quarters because we are heavily exposed to the global economy’.
Interbank rates throughout the world have stayed stubbornly high over the past week - a sign of deep mistrust among financial institutions - despite increasingly desperate efforts by central banks to lubricate interbank markets with hundreds of billions of dollars in liquidity.
That mistrust is breeding a dangerously vicious cycle in the US and Europe. As more banks are crippled by a lack of short-term funding, their surviving peers are increasingly nervous about lending to one another, which starves banks that depend on wholesale markets to stay afloat, triggering more failures.
At the same time, the crisis of confidence is choking off the supply of credit to fund day-to-day business operations and investment activity at other companies, which is one reason why economists fear the US bailout package will not save its economy from a recession.
‘In the best scenario, the very mild recession we have been in so far will become more serious. In the worst case we will see the most severe recession since the 1930s,’ said David Semmens, an analyst at Standard Chartered Bank in the US, after the bailout plan was approved.
Official estimates to be published this Friday could show that Singapore’s economic output contracted one per cent in the third quarter from a year earlier, Kit Wei Zheng, a Citigroup economist here, said in a report yesterday. The latest turbulence in financial markets has further dampened the outlook for full-year growth, which may fall closer to 2 per cent ‘in the worst case’, well below the government’s forecast range of 4-5 per cent, he said.
Economists here expect the Monetary Authority of Singapore to ease its stance on the Sing dollar in its twice-yearly monetary policy statement on Friday, trigger a weakening of the currency from current levels to bolster exporters and cushion the impact of slowing demand in some of Singapore’s biggest trading partners.
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Stocks Savaged as Recession Looms
Commodity, financial stocks in Asia, Europe tumble as global outlook gets bleaker; STI dives 5.6% to 3-year low
By CONRAD TAN
7 October 2008
Stocks in Asia and Europe were savaged yesterday as the banking crisis in Europe deepened and credit channels crucial to the normal functioning of financial markets and economic activity stayed blocked.
Banks and other financial-sector stocks went into free-fall, joined by shares in major exporters and commodity-related stocks, which tumbled on fears that the world’s biggest economies are tipping into recession. Just two days after it was passed the US$700 billion bailout package that was expected to bring some relief to the markets already seems a distant memory. The fear is now spreading to Asia via Europe, whose leaders seem unable to agree on a banking rescue scheme.
The Straits Times Index suffered its biggest one-day fall in percentage terms since January, ending 5.6 per cent lower at 2,168.32.
Shares in Sembcorp Marine and Keppel Corp, the world’s biggest oil-rig builders, plunged 13.5 per cent and 9.1 per cent respectively, as crude oil prices fell below US$90 a barrel for the first time since February.
Other commodity-related stocks listed here, such as Wilmar International, Noble Group and Olam International, were also mauled, ending more than 12 per cent lower.
The Singapore stock benchmark is down 37.4 per cent this year. Yesterday was the lowest closing value for the index since Nov 15, 2005, which means the turmoil in financial markets has erased almost three years of its gains.
In Hong Kong, the Hang Seng Index finished 5 per cent lower, while Japan’s Nikkei-225 index sank 4.3 per cent.
Mitsubishi UFJ Financial Group and Mizuho Financial Group, two of Japan’s biggest banks, fell more than 7 per cent.
Indonesia’s main stock benchmark dived 10 per cent, the biggest loss in Asia.
Stock markets in Europe opened sharply lower, with major equity indices slumping more than 5 per cent in early trading, dragged down by sharp falls in banking stocks. Britain’s blue chips saw £pounds;60 billion (S$153 billion) of value wiped out in the first six minutes of trading.
In Russia, trading was halted after the benchmark Micex Index plummeted 15 per cent. It resumed trading later and fell further to close 19.1 per cent lower.
The steady drumbeat of bad news last week continued late on Sunday, when Germany’s government guaranteed all private-account deposits at German banks to stave off a panic after a rescue plan for Hypo Real Estate, a big mortgage lender, collapsed.
Although US lawmakers passed a US$700 billion package of proposals to save the financial sector on Friday, analysts say the measures won’t be enough to halt the American economy’s slide into recession.
On Sunday, Finance Minister Tharman Shanmugaratnam warned that Singapore is facing an economic slowdown ‘that will last not just one or two quarters, but may last several quarters because we are heavily exposed to the global economy’.
Interbank rates throughout the world have stayed stubbornly high over the past week - a sign of deep mistrust among financial institutions - despite increasingly desperate efforts by central banks to lubricate interbank markets with hundreds of billions of dollars in liquidity.
That mistrust is breeding a dangerously vicious cycle in the US and Europe. As more banks are crippled by a lack of short-term funding, their surviving peers are increasingly nervous about lending to one another, which starves banks that depend on wholesale markets to stay afloat, triggering more failures.
At the same time, the crisis of confidence is choking off the supply of credit to fund day-to-day business operations and investment activity at other companies, which is one reason why economists fear the US bailout package will not save its economy from a recession.
‘In the best scenario, the very mild recession we have been in so far will become more serious. In the worst case we will see the most severe recession since the 1930s,’ said David Semmens, an analyst at Standard Chartered Bank in the US, after the bailout plan was approved.
Official estimates to be published this Friday could show that Singapore’s economic output contracted one per cent in the third quarter from a year earlier, Kit Wei Zheng, a Citigroup economist here, said in a report yesterday. The latest turbulence in financial markets has further dampened the outlook for full-year growth, which may fall closer to 2 per cent ‘in the worst case’, well below the government’s forecast range of 4-5 per cent, he said.
Economists here expect the Monetary Authority of Singapore to ease its stance on the Sing dollar in its twice-yearly monetary policy statement on Friday, trigger a weakening of the currency from current levels to bolster exporters and cushion the impact of slowing demand in some of Singapore’s biggest trading partners.
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