Wednesday, September 3, 2008

Asian currencies and stock markets hammered

I think the best thing to do now will be switching off the notebook and head to Batu Ferringhi beach. I suspect even the most optimistic person will also be infected by strings of bad news. Take a look at this from the WSJ:

1. The Korea Composite Stock Price Index, or Kospi, dropped 4.1% to 1414.43, its lowest closing level since March 14, 2007, and the steepest one-day percentage decline since Jan. 22. The index has lost a quarter of its value since its highest close so far in 2008, in mid May.

2. Prime Minister Yasuo Fukuda abruptly resigned Monday less than a year after taking office, prolonging a period of political deadlock as the world's second-largest economy flirts with recession.

3. The city's(Hong Kong italic mine) private-sector economy shrank for the second consecutive month in August, hitting its lowest level since late 2004 as output fell at its fastest rate in more than five years, Markit Group Ltd., compiler of a purchasing managers index, said Monday.

The Hong Kong PMI fell to 48.5 in August from 49.4 in July, Markit Group said. August's PMI level was the lowest since the 48.4 reading in December 2004.

4. Value investors are known for buying low and selling high, but some big-name mutual-fund managers who thought they bought low are now selling far lower and are posting big losses because of the credit crisis.

So Legg Mason's Bill Miller, John Rogers at Ariel Investments and Oakmark's Bill Nygren and other value managers are unloading some traditional holdings that have disappointed.

"The sudden downside moves are something I've never seen before" and are difficult "to research and predict," says Mr. Rogers, Ariel's chairman. According to fund tracker Morningstar Inc., large-stock value funds are down 11.8% overall this year, worse than the market. The Standard & Poor's 500-stock index's total return is off 10.2%.

You have leaders resigning, foreign exchange reserves declining, Asian economy slowing down and even big value managers are throwing towels. Gloomy, huh?

If Asian has been supplying credits to put off some of the fire in the US and Europe credit crunch for a while, what will happen if these credits begin to disappear as their foreign exchange reserves are drying up – defending currencies, slower export and etc ? Tightening of global liquidity will be negative for all asset class???


(Business Times) ADBI dean Masahiro Kawai, who told the conference that 'global financial turmoil may continue longer than hoped for', suggested to BT that a flight from Asian property market investment by banks, investment funds and various stock market vehicles could damage these institutions as the property boom unwinds.

The warnings came as a sobering counter to the widely held view that Asian markets and institutions are likely to escape relatively unscathed from the sub-prime credit crunch that has wrought havoc upon major investment banks and others in the US and Europe. The theory of a 'decoupling' of Asian economies from outside problems has similarly been shattered by recent events.

Recent weeks have seen the collapse of a series of property development firms in Japan as US and other investors pulled funds from them. The most recent collapse - developer Urban Corp - marked Japan's biggest corporate bankruptcy this year and the implication of yesterday's warning at the conference was that firms elsewhere in Asia could be facing a similar fate.

Mr Chung told BT that property markets in China and Vietnam are especially vulnerable, while South Korea's property market is also facing problems along with those of other East Asian economies. 'There will be another round of credit crisis in developing economies', as money is 'pulled', he said. Foreign direct investment as well as portfolio investment in many Asian economies has been directed into property, added Mr Chung, who is now chairman of NEAR.

The cause of the US dollar's strength in recent weeks has been partly to do with the repatriation of investment funds from overseas, and this process could accelerate now as a fresh credit crunch threatens, in spite of injections of financial liquidity by the US Federal Reserve, Mr Chung commented. 'This will lead to a further correction in asset markets' in Asia and elsewhere, he suggested.

'We have been planting the seeds of the current crisis for many years,' said Mr Chung, who noted that Asia had supplied much of the financial liquidity that fed asset bubbles in the US and elsewhere. Now that US credit markets have seized up, the Fed is having to pump liquidity but this 'can only jeopardise the anchor position of the dollar' in global financial markets.

Is this dawn or mid-night?

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