Hong Kong: Asian stocks slumped to their lowest since December 2004 on Wednesday as poor US corporate results and falling commodity prices fanned worries of a protracted global economic slowdown.
The US dollar surged to a two-year high against a basket of currencies on expectations that central banks around the world will react to slowing growth in their economies by catching up to this year’s deep interest rate cuts by the Federal Reserve.
European stock index futures pointed to drops of up to 2.6% in early trade, darkening the outlook for global equity markets.
The cost of protection against defaults in Asian debt spiked to records after Argentina moved to take over its private pension system, and as fears over debt defaults rocked confidence in emerging markets.
Some Asian companies have been caught off guard by how much credit markets have tightened, which constrains their access to capital, as well as the pace at which global demand has dropped.
“As the credit crunch has worsened, wholesale business inventories have risen, causing an alarming rise in inventories in Asia and emerging markets at a time when seasonally these are usually being drawn down,” said Sean Darby, chief Asia strategist with Nomura in Hong Kong.
“We would expect earnings to be further revised down within Asia and global emerging markets,” he said in a note.
Losses in Asian shares accelerated in the afternoon, with Japan ending down 6.8 percent, and South Korea slumping 5.1%.
Mitsubishi UFJ Financial Group’s shares, which recently invested in Morgan Stanley dropped 8.8% after the Nikkei business daily said Japan’s top lender will sharply cut its half-year net profit estimate.
The MSCI index of Asia-Pacific stocks outside Japan declined 5.1%, at one point touching its lowest since December 2004.
Hong Kong’s Hang Seng index dropped 2.9%, with CITIC Pacific hit for a second day after warning of nearly $2 billion in potential losses from unauthorised currency trading. CITIC Pacific shares fell a further 6 percent after losing half of their market value on Tuesday.
Earnings estimates for Asia-Pacific companies excluding Japan in 2009 have already fallen for four consecutive months, according to Thomson Reuters data. In the last month to 16 October, forecasts fell 3.44%, the biggest monthly decline since November 2001.
Companies in Hong Kong, Singapore and Taiwan were all expected to post falling earnings this year, but were still seen having double-digit growth in 2009, according to global estimates tracker IBES.