Hong Kong: Asian markets plunged on Wednesday on growing speculation the US economy—a vital export market—is sliding into a recession that could lead to a global slowdown.
Investors dumped stocks after an overnight sell-off on Wall Street and on news that Citigroup Inc. had lost nearly $10 billion (Rs39,300 crore) in the fourth quarter as it wrote down mountains of bad mortgage assets—the latest fallout from the credit crisis. Weak US retail sales figures added to the gloom.
“American financial mismanagement has brought us to this economic meltdown,” said Francis Lun, a general manager at Fulbright Securities Ltd in Hong Kong. “Asian stock markets are all suffering; nobody has escaped.”
In Hong Kong, the benchmark Hang Seng index sank 5.4%—its biggest percentage drop since the 11 September terrorist attacks—to 24,450.85. Tokyo’s Nikkei 225 index fell 3.4% to 13,504.51 points, its lowest in more than two years.
Markets in Australia, China, India, South Korea, New Zealand and the Philippines also dropped sharply on uncertainty about the US economic outlook and the full extent of the subprime mortgage crisis.
In Europe, where markets had fallen sharply on Tuesday, stocks slid again. Britain’s FTSE 100 and Germany’s DAX were both down about 1% in morning trading.
Concerns about the US financial system were also felt in the currency market, which sent the US dollar below 106 yen (about Rs39), its lowest in two-and-a-half years.
Investors saw more damage from the credit crisis when Citigroup said on Tuesday it had written down $18.1 billion in bad assets. That help send the Dow Jones industrial average down 277 points, or 2.2%, to 12,501.11.
“The fallout from the Citigroup result is significant, with many saying...there is more bad news to come,” said Trent Muller, an ABN AMRO Morgans Ltd analyst in Sydney. “We will see a bit of panic selling with a lot of investors taking cash off the table today.”
There is also growing fear that the Federal Reserve hasn’t done enough to keep the US economy going. The central bank has lowered its key interest rate by a full percentage point to 4.25% since early August. Now many investors and analysts believe the Fed will cut rates by a half-point at its 29-30 January meeting.
But some believed the concerns about the US economy were overblown. Ernie Hon, a strategist with ICEA Securities Ltd in Hong Kong, said he expected any US economic slowdown would be temporary and have limited impact on Asia. Strong demand from within Asia and West Asia would offset slowing demand from the US, he said, blaming the market drop on investor jitters.
“The recession will only last for one to two quarters because the US will continue to cut rates and inject money into its banking system,” he said.
Still, in Tokyo, the region’s biggest market, worries about the yen’s appreciation contributed to big declines in major Japanese exporters Honda Motor Co., which shed 4.9%, and Sony Corp., which plunged 6.8%. In China, the benchmark Shanghai Composite Index fell 2.8% to 5,290.60. The index has gained 0.6% since the beginning of the year, compared with losses in nearly all other Asian markets.
“The US market certainly influenced mainland Chinese markets due to its impact on Hong Kong shares. That’s the main reason for today’s decline,” said Peng Yunliang, a senior analyst at Shanghai Securities Co.
But the impact is mainly limited to major bank and insurance companies whose shares are listed in both Shanghai and Hong Kong. Overall, China’s share prices have strong support from domestic demand, she said.
“Other stocks like pharmaceuticals, energy, resources and tourism are all continuing to gain thanks to strong demand,” Peng said.
Yuri Kageyama in Tokyo, Kelly Olsen in Seoul, Cassie Biggs in Hong Kong and Elaine Kurtenbach in Shanghai contributed to this story.