Hong Kong: Deepening economic gloom and fears about the health of the global finance sector pushed Asian shares to their lowest level this month on Wednesday, prompting investors to move to low-risk assets such as regional bonds.
The euro briefly fell to a new 2-month low against the dollar as the currency continued to reel from rating agencies’ warnings that a deep recession in Eastern Europe will inflict more damage on struggling Western European banks.
US economic data on Tuesday added to the grim mood, showing a severe slump in factory activity appeared to be getting even worse this month, while sentiment among US home builders shows few signs of recovering after the bursting of the housing bubble.
“The economic data on the global front continues to get worse, and the Australian economy is slowing very quickly. So I think you need to start factoring in further weakness for equity markets globally,” said Savanth Sebastian, equities economist at broker CommSec in Australia.
The MSCI index of Asia-Pacific stocks outside Japan fell 1.1% by 8:15am, after earlier toughing its lowest level since 26 January. The index is headed for its sixth losing session out of the past seven, bringing its losses so far this year to about 11 percent.
Still that is a better peformance than US markets, where the S&P 500 and the Dow Jones average are at near their lowest since 20 November, which had marked 11-year lows. The global declines come despite government actions to stem their deteriorating economies.
US President Barack Obama signed a $787 billion economic stimulus bill into law on Tuesday, and was expected to lay out a strategy later in the day to stem home foreclosures and address the housing crisis - one of the chief causes of the global financial crisis and sharp economic slowdown.
Other sectors such as auto makers are also in big trouble as consumer demand slumps in the face of recession. General Motors Corp and Chrysler LLC requested nearly $22 billion in combined additional US government aid on Tuesday.
Japan’s Nikkei average fell 1.2% with indexes in Australia and Shanghai falling more than 2% each. Shares in South Korea and Hong Kong fell more than 1% each, with more modest losses seen elsewhere.
Among the leading decliners of the day were Asian financial firms from Japan’s Mitsubishi UFJ Financial Group to South Korea’s KB Financial Group
The euro kept tumbling following Moody’s report saying banks in Eastern Europe with large loan books faced downgrades and their parent banks’ ratings could also weaken.
Asian emerging currencies have also been hit as investors shed riskier assets.