Hong Kong: A 6% fall in Asia pushed world stocks to their lowest in five years on Thursday, while oil fell below $51 (Rs2,575) and safe havens such as the yen gained on fears the global recession and a financial crisis will get uglier.
Expectations that central banks may respond to the crisis with another wave of interest rate cuts helped push the two-year US treasury yield to a record low, while regional bond prices surged amid the market turbulence.
Crisis pinch:Women walk past an electronic stock board outside a securities firm in Tokyo on Thursday. Japanese shares slumped, sending the Nikkei below 8,000 for the first time in four weeks. Tomohiro Ohsumi / Bloomberg
Investors are bracing for tough conditions ahead after the latest bearish signals for the global economy: the US Federal Reserve slashed its US growth forecasts, US consumer prices fell at a record pace last month, and Japan’s October exports fell by the most in seven years.
The Federal Reserve predicted that the US recession would run well into 2009, even as the International Monetary Fund (IMF) stepped in to bail out troubled Iceland, leading a $10.2 billion help package, and was set to make as much as $40 billion available to Turkey.
The bleak outlook, which is hitting sectors from US auto makers to Asian chip makers, comes amid renewed worries about the financial system. Citigroup shares hit a 13-year low on Wednesday as investors questioned its survival amid mounting losses from credit cards, mortgages and toxic debt.
“Everybody is accepting the fact that we are in for a prolonged global recession and we are seeing a lot of pullbacks,” said Lucinda Chan, a division director with Macquarie Equities in Australia.
Like dominoes, Asian markets fell a day after US stocks hit their lowest in more than five years. The MSCI All-Country World Index was down more than 2% in late Asian trade, touching levels not seen since May 2003.
Japan’s Nikkei average dropped nearly 7%, below the key technical level of 8,000 points for the first time in three weeks.
South Korean shares also tumbled short of 7%, while losses in Hong Kong, Sydney, Mumbai, Singapore and Taipei ranged between 3.1% and 4.5%.
More broadly, the Asia-Pacific ex-Japan MSCI index fell about 6%. Expectations for a sharp slowdown in global growth sent oil down for a fifth consecutive session, with prices falling a dollar to around $51 a barrel in Asian trade.
Oil on Wednesday fell to its lowest settlement since late January 2007 for a commodity that just in July hit a record high at about $147 a barrel.
Investors are finding plenty to worry about. Federal Reserve officials on Wednesday pared their outlook for growth in the world’s biggest economy to minimal levels and appear poised to cut interest rates further.
The weaker forecast came on a day in which data showed US consumer prices in October posted their biggest drop since monthly records began in 1947, sparking concerns about a deflationary spiral.
The sharply weaker global growth bodes ill for Asian economies that need healthy overseas demand for their products.
Japan on Thursday said exports logged their biggest annual decline in seven years in October.
Regional bonds were in demand as investors looked for relative safety. The 10-year Japanese government bond yield fell 3 basis points to 1.435% after dropping earlier to the lowest since early October.