Asian stocks took their cue from Wall Street and financials were categorically sold off, following a timid drop on Monday, as concerns over the extending credit crisis and slowing economies ricocheted across the region.
Fears circulated in the market concerning Asian banks’ exposure to US mortgage financing agency debt securities, such as that of Freddie Mac and Fannie Mae, in spite of the US government’s reassurances for a rescue plan over the weekend.
Over in Tokyo, the Nikkei 225 dropped 2 per cent to 12,749.68, closing at a 2½ month low, pummeled by financial stocks. The broader Topix lost 2.2 per cent to 1,253.12.
A local report said Japan’s top three banks had a combined Y4,700bn in US mortgage financing agencies’ debt securities. While this appeared to be cause for concern, analysts said that the main anxieties in the market had a much broader focus.
“Investors aren’t overly concerned about the risk attached to Japanese banks’ exposure to the US mortgage financing agencies, as the US government is still standing firmly behind them,” said Kristine Li, a banking analyst at KBC in Tokyo.
“There is more widespread concern over the fact that the global financial crisis isn’t coming to an end and the Japanese banks are not immune. Also, their first quarter earnings will likely be disappointing, especially to those who expect Japanese banks to benefit from high inflation and global credit crunch,” Ms Li said.
Sumitomo Mitsui Financial sank 6.1 per cent to Y784,000, the biggest one-day decline since early March and the heaviest pull down on the Topix. Mitsubishi UFJ tumbled 5.3 per cent to Y926 and Mizuho sank 5 per cent to Y511,000.
Japanese exporter stock prices failed to escape the scalpel, with the yen climbing into early Y105 levels during the day against the dollar. Canon declined 2.6 per cent to Y4,850, while Honda slid 2.8 per cent to Y3,430 and Toyota declined 2.5 per cent to Y4,680.
Hong Kong was hit hard, tumbling 3.8 per cent to 21,174.77, wiping out the gains made since the Bear Stearns rescue on March 17. The index of mainland Chinese stocks traded in the territory slumped 4.7 per cent to 11,687.32.
On the Hang Seng, banks weighed heavily on the index. HSBC lost 3.1 per cent to HK$113.00. Construction Bank declined 4.3 per cent to HK$6.22. ICBC slid 5.2 per cent to HK$5.25.
Sinopec tumbled 3.7 per cent to HK$7.02, following a downgrade by Morgan Stanley.
Shanghai stocks ended their positive run, sliding 3.4 per cent to 2,779.448, again pummeled by the banking sector. Merchants Bank led the Composite index lower, losing 5.2 per cent to Rmb23.09, with Citic falling 4.3 per cent to Rmb23.42 and Minsheng sliding 3.7 per cent to Rmb6.01.
Taiwanese stocks suffered the largest declines across the region, slumping 4.5 per cent to 6,834.24, as Cathay Financial tumbled 7 per cent to T$58.70. Taiwan’s Supervisory Commission had disclosed a T$600bn figure of exposure for the territory’s companies in Freddie Mac and Fannie Mae.
The market closed near a two-year low, and technology stocks were also caught up in the fray, with Taiwan Semiconductor sliding 5 per cent to T$57.60 and Hon Hai Industries, which slid 3.2 per cent to T$135.50.
It was a similar story in Australia, where banks fell. The S&P/ASX 200 shed 2.1 per cent to 4,815.7, the lowest in almost 2½ years. Macquarie Group tumbled 7.4 per cent to A$46.11, Westpac Banking sank 3.4 per cent to A$18.68 and National Australia Bank slumped 4.2 per cent to A$25.36.
The Sensex entered the sell off with vigour, recently trading down 4.4 per cent at 12,752.63, heading for its lowest in more than a year, as investors fled the banking sector.
Singapore lost 2.4 per cent to 2,833.59, while in Korea, the Kospi slumped 3.2 per cent to 1,509.33.
“The markets will remain quite volatile,” said David Cohen from consultancy Action Economics in Singapore. “It’s not going to be for the faint hearted.”
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