Asia Falls on Dubai World; Yen Surges
November 27, 2009 by admin
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By Matthew Allen and Wei-Zhe Tan from Wall Street Journal, 27 November 2009
Asian stock markets declined Friday, with financial shares bearing the brunt of losses as investors worried about banks’ exposure to Dubai World’s debt.
Curencies perceived as risky were also sold off as Dubai World, the city-state’s largest corporate entity, Wednesday asked creditors for a six-month standstill on debt repayments of $59 billion. Investors piled into safe-haven bets like the yen, which rose to a fresh 14-year high against the U.S. dollar and hurt Japanese export stocks.
Japan’s Nikkei 225 Average fell 3.2% to 9081.52, its lowest close since July, Australia’s S&P/ASX 200 ended down 2.9%, South Korea’s Kospi dropped 4.7% and Taiwan’s Taiex gave up 3.2%.
Hong Kong’s Hang Seng Index dropped 4.8% in late trading and China’s Shanghai Composite lost 2.4%, while India’s Sensex gave up 3.7%.
Dow Jones Industrial Average futures plunged 297 points lower in screen trade. Markets in Singapore, Malaysia and Indonesia were shut for a holiday
Patrick Bennett, Asia rates strategist at Societe Generale said: “Fallout from Dubai World seeking a debt moratorium has been broad. It is not the amount involved ($59 billion) but potential contagion that will drive markets.”
Financials across the region took a hit as investors became jittery about banks’ potential exposure to Dubai World’s debt, and other debt issued in Dubai. Major banks in Australia were all down sharply, with National Australia Bank down 4% and Westpac Banking Corp. down 3.8%.
In Hong Kong, HSBC fell 7.6% while Standard Chartered down 7.4%. In Seoul, Shinhan Financial was down 6.3%, while ICICI Bank shed 5.7% in Mumbai.
Foreign exchange markets saw a broad move out of currencies perceived as more risk sensitive, with the Australian and New Zealand dollars hit in particular along with the euro, as the European markets’ reaction to the Dubai news reversed the recent ‘risk on’ profile of the market.
Japanese exporter stocks were weaker as the yen’s climb against the U.S. dollar reached heights not seen in almost 15 years. The dollar fell below ¥86 in early trade and hit a 14-year low of ¥84.82 before recovering some ground midday.
Japan’s finance minister Hirohisa Fujii stepped up his rhetoric against excessive yen rises on Friday, calling the currency’s recent climb “one-sided” and threatening to intervene in foreign-exchange markets if the rapid ascent continues. “If this kind of situation is sustained, I think that it would be something abnormal … it would be possible for us to take” steps under such conditions, he said.
But Societe Generale’s Mr. Bennett said intervention is unlikely for now. “Japanese official comments have been prominent on the newswires and while more specific in tone than the last couple of days, we would still expect some ratcheting higher in tone before physical action is taken,” he said.
Mizuho Securities market analyst Yukio Takahashi said that many Japanese exporters have based their earnings outlooks on the assumption of the U.S. dollar at ¥90, with few conservative firms basing theirs on ¥85. Honda Motor was down 3.3%, Toyota Motor was off 2.1%, Sharp fell 3.0% and Nikon was off 4.0%.
The risk-averse trade dragged the Australian dollar lower to US$0.9038. The New Zealand dollar fell to US$0.7103.
The U.S. dollar was buying ¥86.04 compared with ¥86.49 in mid-afternoon trade in Toronto Thursday. The euro was at $1.4855 compared with $1.5009, and at ¥127.86 from ¥129.74.
But some analysts suggested that the selloff in equities, higher-yielding currencies and commodities was a little overdone. “Everyone has gone into panic mode but this is Dubai — it’s not going to send the world into a tailspin,” said Patersons Senior Client Advisor Chris Blair, in Sydney.
Taiwan shares were down 1.6%, Philippine shares fell 1.2% and Thailand stocks slipped 1.0%. New Zealand’s NZX-50 lost 1.3%.
Resource stocks were also taking a hit as the general pull back from risk sent commodities prices lower. Rio Tinto was down 3% and BHP Billiton fell 3.4% in Sydney. In Tokyo, Sumitomo Metal Mining fell 6.3% and Aluminum Corp. of China sank 5.9%.
Lead December Japanese government bond futures were higher on the stronger yen and weakness in the Nikkei 225. Futures were up 0.32 at 139.82 points. The 10-year cash JGB yield was down 3.5 basis points at 1.245%.
Spot gold was recently trading at $1,144.60 per troy ounce, down $47.50 a troy ounce from the London afternoon fixing. – WSJ
Republished from Wall Street Journal on 27 November 2009