Global markets fall on fears of deepening downturn
By Bettina Wassener, Jack Healy and Matthew Saltmarsh
Stock markets in Asia on Wednesday continued a slide that began in the United States and Europe amid renewed concerns over the effectiveness of the U.S. efforts to shore up the economy, although falls were more muted.
The declines come amid continued concerns that Asian economies, once thought relatively immune to the global crisis that began as U.S. mortgage-related problems in 2007, have now been fully caught up in a global economic crisis that is set to worsen before stimulus measures can begin to take effect.
With demand in Europe and the United States withering, Asian exports have been severely hit, sharply slowing overall growth rates in the region's once booming economies.
The Nikkei 225 index in Japan was down 1.35 percent by midday. On Tuesday, the index had fallen by a similar amount, showing only a muted reaction to news that the Japanese finance minister, Shoichi Nakagawa, was resigning.
The Hang Seng index in Hong Kong and the Kospi in South Korea were both down around 1.5 percent by midday on Wednesday, while the key indexes in Singapore and Taiwan eased 0.5 percent."With the continuing slump in export-led growth in the region, and exports likely to remain negative for a considerable time, it's difficult to get optimistic," said Stephen Davies, chief executive of Javelin Wealth Management in Singapore. "Investors are continuing to do what they have been since the second half of last year – staying on the sidelines. And who can blame them."
The past two months have brought a steady stream of data showing the impact of the global crisis on Asia was more severe than expected, and economists broadly agree that the picture is set to become worse before any improvement can take root.
Hopes that the new government in the United States would be able to bring a swift turnaround have dissipated as "optimism has become overcome by reality again," Davies said.
He said the market reaction to the Obama administration's "so far vague proposals for the banking sector has been naïve, given the that the issues they are grappling with are so enormous that they cannot be solved overnight."
Earlier, worries about the deteriorating financial situation in countries like Romania and Hungary led to a huge sell-off on Tuesday that began in Europe and crashed ashore on Wall Street.
Every sector sank, with financial stocks leading the way and energy companies falling on tumbling oil prices. Rattled investors rushed to buy safer investments like gold and Treasury debt.
The losses on Wall Street were part of a global wave of selling that highlighted fears about how banks, automakers — entire countries — will fare in a deepening global downturn.
The news helped send the Dow Jones industrial average to nearly the same low that it hit amid the credit crisis last fall. The Dow fell 297.81 points, or 3.8 percent, to 7,552.60, which was almost the same as the 7,552.29 close for the Dow on Nov. 20.
On Tuesday, losses in General Motors, Bank of America and American Express dragged the blue chips lower. The only Dow stock in positive territory was Wal-Mart, which rose after reporting better-than-expected profits.
The broader Standard & Poor's 500-stock index slid 37.67 points, or 4.6 percent, to 789.17, dropping below what analysts said was an important trading threshold of 800. The S&P's drop of 4.56 percent was only the 16th biggest percentage drop in the last year, highlighting the pounding that stocks have taken in recent months.
The Nasdaq fell 63.70 points, or 4.2 percent, to 1470.66.
Moody's Investor Services warned of "hard landings" for Eastern European countries that had grown rapidly in recent years as they embraced American-style capitalism, becoming fertile ground for West European banks and investors. Moody's warning underscored the volatility in the banking sector, particularly for banks that operate in Eastern European countries like Hungary, Croatia, Romania and Bulgaria.
"Eastern Europe fed from the global tidal wave of liquidity and easy money," said Nick Chamie, head of emerging-markets research at RBC Capital Markets in Toronto. "They will now see significant collateral damage — a major contraction in growth, and the financial system will continue to implode. You'll probably see some of the fixed exchange rates broken."
In addition, Chamie said, there was likely to be a significant rise in unemployment, accompanying social tension and perhaps even a reconsideration of the benefits of integration with the European Union for populations in the East.
The gyrations in stocks came on a day when President Barack Obama signed the $787 billion economic stimulus bill. Despite the size and scope of the package, some investors have said it may not be enough to right the economy."Nobody believes it's going get better yet," said Howard Silverblatt, senior index analyst at Standard & Poor's.
Shares of General Motors, which were more than $25 last February, fell nearly 13 percent, to $2.18, as GM and Chrysler submitted major reorganization plans to the U.S. government. Shares of the Ford Motor Company, which has not received any bailout funds, were down 4 percent, to $1.69. Chrysler is not publicly traded.
Analysts said the markets would continue to lurch as long as the banking system remained on life support. Although Tuesday's drop was stark, there have been 15 other trading days since September when the S&P has posted bigger losses.
"Without any further concrete details, the market's really left to wonder," said Ryan Larson, head equity trader at Voyageur Asset Management.
Crude oil fell $2.58 to settle at $34.93 a barrel, and Exxon Mobil, Chevron and Total skidded as consumers and industries continued to scale back their demand for oil and gasoline.
Also on Tuesday, the Treasury Department released data from the 20 largest banks that accepted government money showing modest declines in lending during the fourth quarter of 2008. New loans made to commercial real estate developers saw a big pullback, with the typical bank reporting a 19 percent drop amid weak demand. Residential mortgage balances declined about 1 percent during the same period.
Credit card balances, on average, increased about 2 percent. But the biggest card issuers reported "more marked" decreases in both total credit extended to cardholders. Many big lenders, it seems, are continuing to cut back on untapped lines of credit.
Corporate loan balances also fell slightly in the fourth quarter, even though reports were mixed. Banks reporting declines said that fewer small-business customers were seeking new loans; many had trouble accessing short-term funds amid troubles in the commercial paper market.
In a sign of further deterioration in the industrial sector, a gauge of manufacturing fell precipitously in February. The Empire State Manufacturing Survey, which is calculated by the Federal Reserve Bank of New York, fell to a new low of negative 34.7 in February, from negative 22.2 in January.
"Robust export demand had been the main support for U.S. manufacturing for many months," Joshua Shapiro, chief United States economist at MFR, wrote in a note. "Now, with economic activity weakening sharply around the world, exports are dropping like a stone."
source : Herald tribune
