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Wall Street effects on Asian markets
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The West’s financial tsunami has hit the East. Asian stock markets tumbled on Tuesday as the reverberations from the collapse of Lehman Brothers Holdings Inc., the sale of Merrill Lynch and Co. and the travails of American International Group Inc. (AIG) rippled across the Pacific. A holiday in most of the region’s markets on Monday delayed—and perhaps magnified—the effect. But longer-term pressures such as a collapse in Japanese consumer confidence and China’s economic slowdown are also undermining markets.
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Investors’ fears of exposure to the fallen US giants depressed financial stocks most. In Japan, Mizuho and Nomura fell by about 10%. Aozora Bank lost more than 15%, even though it said that its net exposure to Lehman Brothers could be less than $25 million (Rs116.5 crore), against the $463 million reported in the investment bank’s bankruptcy filing.
Confidence is also being tested in China. The country is caught between accelerating inflation and a strong currency, which are eroding export competitiveness, and slowing economic growth. On Tuesday, the Peoples’ Bank of China, the central bank, cut interest rates for the first time since 2002. The 0.27 of a percentage point reduction means the rate on a one-year loan is now 7.2%.
Other central banks in the region may well follow suit as the policy emphasis switches from fighting inflation to fighting recession. Far from becoming “decoupled", the East risks catching the contagion spreading from the West.
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