Asian Markets Resume Slide Despite Government Efforts (Washington Post)
TOKYO, Oct. 27 -- Fear of a global recession again punished stock markets Monday, while governments tried to stem the damage from an eroding world economy.
By day's end in Asia, Japan's Nikkei had closed at a 26-year low, while the Paris CAC 40 closed down 4 percent. Losses weren't as bad in London's FTSE, down 0.8 percent, and Germany's Dax gained 0.9 percent. U.S. market futures through much of the morning indicated a sharply lower opening on Wall Street but moderated after the U.S. Treasury said it expected to release this week $125 billion it is investing in the preferred stock of nine banks. But a sell-off in the last 10 minutes of trading sent major U.S. exchanges down between 2.4 percent and 3.2 percent by closing.
A soaring yen is making Japanese exports more expensive, even as global demand for them dwindles. The currency's swing has been so sharp that the Group of Seven industrialized nations warned of "possible adverse implications for economic and financial stability."
The yen is up 13 percent against the dollar this month and 29 percent versus the euro, while the Nikkei stock average has become one of the worst performers in the world. Japanese stocks have lost 30 percent of their value this month and fell another 6.4 percent Monday. Japan's two biggest banks fell 15 percent.
Japanese Prime Minister Taro Aso ordered his government to prepare emergency measures to stabilize markets. They are expected to include government purchase of bank stocks, tighter rules on short selling and a five-fold increase in the amount of government money that can be injected into banks.
"Unless we take appropriate steps, there will be major impact on the real economy," Aso told reporters. "We must act as soon as possible, starting today."
In Japan, export dependence rose to a record high this year -- just in time to be clobbered by the surging yen and falling demand. Overseas markets accounted for 45 percent of all manufacturing sales for the year ending in March, according to the Nikkei financial newspaper.
Export-driven, brand-name corporations such as Sony and Canon have become the only engine of growth in the sluggish Japanese economy. But they are all in deep trouble now.
Canon, the largest maker of digital cameras in the world, said Monday its third-quarter profits fell by 21 percent from a year earlier. It cited declining demand and a stronger yen. For similar reasons, Sony said last week it expects annual profits to crater by about 60 percent.
Japanese Finance Minister Shoichi Nakagawa said Japan had asked for G-7 members to make the announcement about concern over the yen, but he did not specify any steps that Japan or other countries might take to halt the yen's rise.
Part of the yen's rapid appreciation is being caused by investors who are rushing to unwind their investments in what is known as the yen carry trade.
For much of the past decade, investors have borrowed yen -- at Japan's very low interest rates -- to buy positions in other currencies in emerging economies such as South Africa and Brazil, where yields were far higher.
On a smaller scale, the burgeoning value of the yen is even causing cancellations of winter vacations at Japanese ski resorts.
In an economy that began shrinking earlier this year, 20 percent of publicly owned corporations in Japan have cut their earning forecasts for the coming year, according to a recent survey. And they made those forecasts before the latest surge in the value of the yen, according to the Nikkei newspaper.
The results were the same in markets across Asia.
Hong Kong stocks crumbled, closing down 12.7 percent as investors unloaded billions of dollars worth of shares of banking and finance companies. Banking giant HSBC was down almost 15 percent after falling 12 percent on Friday. The operator of Hong Kong's bourse, Hong Kong Exchanges & Clearing, plunged almost 14 percent.
Stocks in China fell about 6 percent, with the Shanghai Composite Index slipping to the lowest level in more than two years. The index has fallen backward by about 72 percent from its peak last year.
The Industrial & Commercial Bank of China dropped 11 percent. The bank, the mainland's biggest lender, announced lower-than-expected earnings Friday, raising new worries about how long China will be able to sustain its growth amid the global financial turmoil. China's government took additional steps on Monday to try to ensure the stable operation of its economy. The People's Bank of China, the country's central bank, said it would deposit the equivalent of about $4.4 billion with commercial lenders for loans.
Stocks in the Philippines plunged 12 percent Monday, triggering circuit-breakers that briefly stopped trading. Analysts said foreign fund managers were pulling out of stocks to meet obligations at home.
An unprecedented interest-rate cut on Monday by South Korea's central bank stopped the bleeding, for a day at least, in that country's stock market, which last week lost 20 percent of its value. The Kospi index managed a 0.8 percent gain.
But following the surprise cut of three-fourths of a percentage point, South Korea's bedraggled currency, the won, fell yet again against the dollar. The central bank, which last week announced it would use $130 billion to help local banks, said Monday that more interest-rate cuts are likely. The current benchmark rate is 4.25 percent.
"Domestic demand is faltering amid financial turmoil and exports will likely slow down," said Lee Seong-tae, governor of the Bank of Korea.
South Korea has risen to become the fourth-largest economy in Asia -- riding on the back of a powerful export sector that accounts for 50 percent of the country's total economy.
In a pattern echoing across Asia, those exports are now slowing far faster than officials had expected. The South Korean economy grew 0.6 percent in the third quarter, the slowest rate in four years.
The financial crisis rippled more forcefully into the Persian Gulf as well. Worried customers lined up outside Kuwait's Gulf Bank on Monday to pull money from their accounts. Those in line said they were nervous over the Kuwait central bank's announcement that it was stepping in to guarantee the bank's deposits.
Kuwait's central bank was forced to intervene after a client defaulted on up to $750 million in derivatives contracts, officials from Kuwait's government and Gulf bank said.
Separately, Kuwaiti investors and traders waged a third straight day of protests inside and outside the country's stock market. A government promise over the weekend to form a task force to handle local fallout from the financial crisis has failed to appease the protesters, who are demanding Kuwait do more to shield investors from stock losses.
Saudi Arabia, anxious to tamp down any such unrest there over the economic turmoil, said Sunday it would make $2.7 billion available in low-interest loans to help ordinary citizens.
Gulf markets were down at midday Monday.
The Indian stock market lost over two percent, a downturn on the eve of Diwali, the Hindu festival of good fortunes. Stocks in banking, power, metal and technology were all down. Analysts expressed helplessness at the continuous fall in the past few days.
"What began as a global problem has been imported into India and has now become a local paranoia. This is a seamless interlocked world economy. The slide downward is beyond our control, we just have to allow it find its depth," said Sanjeev Patkar, head of equity research in Mumbai-based Dolat Capital. "This might be the worst Indian market valuation since 1999, before the tech bubble began."
