Tokyo: Asian stocks slumped and the euro tumbled to a one-year low against the dollar on Wednesday, as cuts in Greece and Portugal’s credit ratings set off a flight to safety on fears that the eurozone’s debt problems are spreading.
Oil fell below $82 a barrel after ratings agency Standard & Poor’s slashed the sovereign ratings of Greece to junk status and downgraded Portugal.
In issuing the downgrades, Standard & Poor’s said it was concerned about Greece’s ability to implement the reforms needed to address its high-debt burden and Portugal’s ability to deal with its debt load given its weak economic outlook.
Investors said the credit woes could spread and drag on Europe’s economy but the chances of global contagion were low given the economic strength elsewhere in the world.
“It’s quite obvious that the fiscal fundamentals in Asia are much stronger than the peripheral Europe. I won’t say there is no contagion... but there will not be lasting impact on Asia,” said Desmond Soon, head of fixed income at DBS Asset Management in Singapore.
The MSCI index of shares outside Japan was down about 1.7%.
Japan’s Nikkei average plunged 2.6%, dragged down by exporters such as Kyocera after downgrades in Greece and Portugal’s credit ratings.
Investors punished shares of companies that reported disappointing earnings. East Japan Railway tumbled after the company announced a drop in annual operating profit and its earnings forecast fell short of expectations.
After the closing bell, Honda Motor Co forecast a smaller-than-expected 10% rise in full year operating profit and warned of stiffer competition as Korean and US automakers roll out models to rival its fuel-efficient line-up.
The stock ended the day down 1.5%.
Koen De Leus, economist at KBC Securities, said the Greek crisis was clouding everything else on financial markets. “Investors are starting to react emotionally. In the current environment, it’s very difficult to impress with better-than-expected earnings,” he said.
Shares in Hong Kong shed 1.5%, while Shanghai stocks fell less than half a percent.
Hong Kong-listed shares of Europe’s largest lender, HSBC, fell 3% as fears of a Greek debt default mounted. HSBC has an almost 15% weighting in the Hang Seng Index and accounted for about 0.4 percentage points of the HSI’s loss.
Shanghai stocks extended a 2.1% drop in the previous session sparked by a media report of a possible share issue by China Construction Bank.
“Banking and property stocks are more stable and the other sectors are only down slightly as everyone has digested the news over the past two days,” said Zheng Weigang, analyst at Shanghai Securities. “It is now likely we will see a slight bounce upwards.”
Australian stocks fell more than a percent, with miners leading the way lower, but finished off the day’s lows, shrugging off stronger-than-expected inflation reading.
Australia’s consumer prices rose by more than forecast last quarter and key measures of underlying inflation also came out higher than policymakers had hoped, adding to the risk of an interest rate hike next week.
“The figures suggested there was a small leaning towards a bit of inflation coming into our economy which would suggest the economy is still on track and going fairly well,” said Paterson Securities dealer Martin Angel.
“At the end of the day, what’s important is, is our economy travelling well, are the Asian economies travelling well? Yes they are.”
South Korean shares lost 0.9%, with LG Electronics slipping after its quarterly results.
The world No.2 TV maker warned that profits at its struggling mobile division would be slow to recover, but it expects this summer’s soccer World Cup to drive TV sales and push up next quarter’s earnings.
Shares in Singapore and India lost nearly 2%, while Taiwan shares shed less than a percent.
The dollar hit an 11-month high against a currency basket after concerns about debt problems in Greece fuelled safe-haven demand for the U.S. currency.
Gold eased from Tuesday’s 2010 high as the dollar reached a one-year peak against the euro, but the metal remains firmly supported by fears euro zone sovereign risk is spreading.
Oil fell for the third straight session, taking losses this week to 4% on excess crude supplies in the United States and widespread fears a possible debt default in Greece could derail the recovery.