Asian stocks take a beating on fears of severe US recession

Asian stocks take a beating on fears of severe US recession

Hong Kong: Asia’s markets took a battering Monday on fears a US recession could run deep after another batch of miserable economic news from the world’s biggest economy.

The region’s markets were in turmoil as investors sold off stocks following an 8% overnight fall on Wall Street, which lost almost 8% as the US economy was officially said to be contracting.

A 100 basis points interest rate cut in Australia and further economy-boosting measures announced in Japan were not enough to instil confidence in traders. (One basis point is one-hundredth of a percentage point.) Tokyo’s Nikkei slumped 6.35%, Sydney 4.2% and Hong Kong 5%. Seoul dived 3.3%, Taipei 3.57% and Singapore lost 3.02%. However, Shanghai shed just 0.26% amid hopes Beijing will introduce more measures to boost the market.

The tumbles came after a week of steady rises across Asia. “We believe that last week’s stock rally went too far and markets were ripe for a correction," said Dariusz Kowalczyk, chief investment strategist at CFC Seymour in Hong Kong.

The main catalyst was an economic panel’s announcement that showed the US economy had been in recession since December 2007 based on a measure of income, employment and other factors.

More bad news came with the latest data that showed US manufacturing slumped to a 26-year low in November.

As the worst financial crisis since the 1930s grinds on, the Reserve Bank of Australia slashed its lending rate by a bigger-than-expected 100 basis points to 4.25%, its lowest level in at least six years.

Japan’s central bank meanwhile outlined new measures to make it easier for commercial banks to borrow money using corporate debt as collateral, aiming to unclog credit channels that are vital to the economy.

But the moves had no impact on the markets. The Nikkei in Tokyo has lost 48% this year, Sydney is down 44%, Hong Kong is off about 52% and the Dow Jones has lost nearly 39%.

Commodity firms were also clobbered as the price of crude fell below $50 (Rs2,525) a barrel overnight on concerns over wilting demand as the world’s major economies slow.

Investors were also awaiting the outcome of a meeting in Washington this week where US automobile industry’s Big Three—Ford Motor Co., Chrysler Llc. and General Motors Corp.—are appealing for a $25 billion lifeline, which many see as essential for the US auto industry.

In Tokyo, shares plunged 6.35%. The benchmark Nikkei-225 index plunged 533.53 points to finish at 7,863.69.

As well as the news on the US economy, investors here were also worried by a report in The Wall Street Journal that investment bank Goldman Sachs is set to report a quarterly loss of $2 billion.

Hong Kong share prices closed 5% lower.

The benchmark Hang Seng Index closed down 702.99 points at 13,405.85 after trading between 13,344.60 and 13,513.50.

Australian share prices closed down 4.2%.

Chinese shares closed down 0.26%.

Investors saw no new incentives because they had already priced in expectations that an upcoming government economic planning meeting would produce more stimulus efforts, traders said.

The yuan fell to the limit of its daily trading band against the dollar for the second consecutive session Tuesday amid expectations that Beijing will allow the currency to depreciate further to prop up exports.