Asian stock markets rattled by fresh subprime jitters

Asian stock markets rattled by fresh subprime jitters

Tokyo: Most Asian stock markets lost ground in volatile trade on 27 November 2007 after new worries about the fallout from the US subprime loan crisis battered Wall Street, dealers said.

Investors dumped shares as initial optimism about the outlook for the US holiday shopping season gave way to fresh jitters about the impact of recent credit market turmoil on major US banks, they said.

Hong Kong shed 1.5%, Shanghai lost 2.0%, Sydney gave up 0.6%, Singapore fell by 1.5% and Taipei dropped 1.8%

Major markets had been as much as 3% in the red in early deals after Wall Street’s Dow Jones index lost 1.8% on 26 November.

“The market is full of uncertainty, which investors hate most," said Park Hyoung-Ryol, a fund manager for Consus Asset Management in Seoul.

“There might be additional subprime loan-related bombs from the US financial sector and the stock market will take a hit every time," said Park.

Bucking the trend, Tokyo was up 0.6% and Seoul added 0.2% as news of a $7.5 billion investment in Citigroup by the Abu Dhabi government helped to ease some concerns about the credit market turmoil.

“The news on Citigroup, one of the most badly hit by the subprime mess, helped soothe the market to some extent," said NTT Smart Trade director Takashi Kudo in Tokyo.

Media reports had earlier said Citigroup was planning its second round of “large-scale" layoffs in under 12 months.

Meanwhile British bank HSBC announced it was readying up to $35 billion to bail out two funds it manages.

There are fears still more bad news could come from global banks on their exposure to US subprime loans to risky American homebuyers amid a wave of mortgage defaults, said Matthew Kwok at Tanrich Securities in Hong Kong.

“It’s hard to tell when the market will end the correction as overseas markets have not yet stabilised," he said.

As well as the impact on the banks, investors fear that the US housing and credit woes could hit the labour market and consumer spending, pushing the world’s largest economy into a severe slowdown or even recession, dealers said.

That would hit Asia’s exports to the region, hitting economic growth and corporate profits, they added.

A promise by the US Federal Reserve to ensure stressed US financial markets would have adequate liquidity over the looming Christmas holiday and the new year did little to ease market jitters, dealers said.

Major US banks will be wrapping up their year-end operations in coming weeks and analysts expect many to reveal further investment losses tied to the US housing slump and rising mortgage delinquencies.

But the current market weakness should provide good buying opportunities for investors in Asia, said Adrian Mowat, a Hong Kong-based strategist at JP Morgan.

“Market movements are being driven by what is happening in the US, which we don’t believe will have a meaningful fundamental impact on Asian economies," he said.