Hong Kong: Asian stocks recovered after last week’s steep sell-off over the Dubai debt crisis on growing speculation the fallout from a potential default will be limited, while assurances from various authorities also helped calm nerves.
Banking shares, which bore the brunt of the selling on Friday on worries about banks’ exposure to Dubai World and property group Nakheel, were at the forefront of Monday’s rebound in Asia.
“I think it’s going to be okay. At the end of the day Dubai and Abu Dhabi need each other. And there will be a lot of pressure on Abu Dhabi to step in, from the neighbouring countries,” Templeton Asset Management fund manager Mark Mobius told Reuters.
Hong Kong shares, which posted their biggest single day loss in eight months on Friday, and stocks in Japan, which ended last week at a four-month low, were among the strongest performers in the region on Monday.
In South Korea, the government pledged it will stay vigilant, while a top Indonesian central banker said there would be no fallout from Dubai’s debt problems on Southeast Asia’s biggest economy.
South Korean markets have been especially sensitive to international financial instability mainly because the highly leveraged local banking system is heavily exposed to the global credit market situation.
The MSCI index of Asia Pacific stocks traded outside Japan rose more than 2.5%, recouping much of Friday’s loss. The regional gauge has gained more than 60% so far this year and is well on course for its best year since a 80% jump in 1993.
Stocks in the United Arab Emirates, trading for the first time since the call for a delay in repaying billions of dollars in debt, dived with Dubai’s index down 7% and Abu Dhabi’s share benchmark 8% lower.
The dollar surrendered some of last week’s gains against other major currencies and the yen retreated from a 14-year high hit last week. The two units rose sharply last week as fears of a possible Dubai debt default led to unwinding of carry trades.
Authorities soothe nerves
Investors were also placated by authorities’ moves to prevent any major fallout from a looming debt default by two of Dubai’s flagship firms.
Financial markets shuddered last week after Dubai said it would ask creditors of state-owned Dubai World and Nakheel, the builder of its palm-shaped islands, for a standstill agreement as a first step toward restructuring billions of dollars of debt.
On Sunday, the United Arab Emirates offered banks emergency support to ease fears in financial markets although analysts say the move to inject liquidity into Dubai’s banks by the central bank, together with promises by neighbouring city state Abu Dhabi to provide selective support, was the bare minimum they could do.
In Seoul, vice finance minister Hur Kyung-wook said the government would maintain a daily monitoring system until the Dubai incident was resolved.
Indonesia’s central bank deputy governor said the country is not expected to feel any fall-out from Dubai’s debt problems while the Philippine central bank governor said the crisis was not seen having a major impact on remittances from the Filipino diaspora.
About a tenth of the Philippines’ 91 million people live and work abroad and their remittances are vital to domestic spending.
Investors also took heart from Wall Street’s truncated losses, raising hopes the flight to less risky assets seemed to be subsiding. US stocks recovered slightly towards close Friday after a slide of more than 2% at the open.
“The fall in US stocks wasn’t as bad as expected and that has lifted one of the biggest Dubai-related concerns, given that worries about that don’t seem to be as bad as they once were,” said Masayoshi Okamoto, head of dealing at Jujiya Securities.
Banks lead rebound
Leading the recovery were bank and construction shares, which were the big losers last week as investors cut exposure to sectors most vulnerable to economic uncertainty.
HSBC Holdings and Standard Chartered, which plunged to multiweek lows on Friday, recovered about half those losses with gains of more than 4% each, leading Hong Kong’s Hang Seng index to a 3.3% jump.
Britain’s HSBC, Europe’s biggest bank, has the biggest exposure to the UAE, according to end-2008 estimates by the Emirates Banks Association.
But stocks with exposure to Dubai continued to suffer.
These included Singapore’s DBS Group and City Developments, which pulled the Straits Times index down more than a percent, Indonesian property firm PT Bakrieland Development and Malaysia’s LCL Corp.
Key indexes in Australia and Korea rose more than 2 percent while gains in India and Taiwan were above a percent.
Japan’s Nikkei average, which hit a four-month closing low last Friday, gained 2.9 percent as the yen’s fall from a 14-year high against the dollar also lifted exporters.
The yen weakened across the board after Japan’s strategy minister Naoto Kan said the government has agreed to take measures that will stem the yen’s appreciation.
He did not specify, however, what measures Tokyo would take. The dollar reversed earlier losses against the Japanese currency, rising as much as half a yen to trade slightly higher on the day at 86.60 yen. On Friday, the dollar hit a 14-year low below 85 yen.