Hong Kong: Asian stocks slid on Wednesday after disappointing earnings from big US banks sparked profit worries, with India's share market and rupee suffering a panic selloff on proposed curbs on inflows of foreign funds.
Weakness in equities and fresh worries about problems in global credit markets shored up demand for safe-haven assets including Japanese government bonds, while the yen rose against other major currencies ahead of a meeting of finance ministers from the Group of Seven industrial countries on Friday.
Indian stocks dropped about eight per cent in the first few minutes of trade, prompting trade to be stopped for an hour, as investors reacted to proposed urgent curbs on flows of foreign funds into shares through instruments such as participatory notes.
"Obviously the stock market will fall in a knee-jerk reaction. Some foreign funds will start selling and the long-awaited rupee depreciation will happen," said K. Harikar, executive vice president, treasury & financial institutions group at Development Credit Bank.
MSCI's measure of Asia Pacific stocks excluding Japan had fallen 1.6 per cent to a one-week low, while Tokyo's Nikkei average dropped 1.4 per cent to a two-week low.
The MSCI index has shed nearly 3 per cent from a record high set last Thursday. Financial shares remained a major drag on markets after big US banks including Wells Fargo & Co posted profits that missed Wall Street estimates due to credit losses.
Australia's Macquarie Bank lost 1.4 per cent , Japan's Mitsubishi UFJ slid 3.7 per cent and South Korea's Shinhan Financial Group dipped 2.5 per cent . "Generally, the mood is still a bit sour at the moment on the financial firms," said Lucinda Chan, division director at Macquarie Equities. Despite upbeat results from technology bellwether Intel Corp and Yahoo Inc, regional tech issues were mixed, with only Yahoo Japan the clear winner, rising 4.1 per cent , after Yahoo Inc's results and optimistic outlook.
Adding to fears about the fallout from the global credit squeeze, Sanyo Electric dropped 7.1 per cent after saying it had given up on the sale of its semiconductor unit after a private equity buyer failed to secure funds for the deal in tougher debt markets.
In the forex market, the partially convertible Indian rupee suffered its biggest one-day drop in over nine years, falling towards a two-week low of 40 rupees to the dollar. At 0500 GMT, it was at 39.83, down 1.2 per cent from Tuesday's close.
The Securities and Exchange Board of India said on its web site that after consulting the government, it was recommending changes in policy on participatory notes and set a deadline of Oct. 20 for comments on the propsals.
Foreign investors can use the notes to buy shares and bonds. Foreign portfolio inflows to Indian shares have jumped $4.6 billion this month, taking the total in 2007 to a net $17.6 billion.
The strong inflows helped push the rupee to 9-½ year highs last week. Meanwhile, diminished risk appetite helped the yen gain against higher-yielding currencies such as the euro and the Australian dollar.
Investors have been borrowing the low-yielding yen to purchase riskier but better-yielding assets but they tend to reverse or avoid those trades at times of heightened risk aversion.
"The currency market is swung around by the stock markets, with higher-yielding currencies getting the brunt of a risk reduction trend," said a dealer at a European bank. The dollar fell to a 1-1/2-week low near 116.30 yen, while the euro dipped below 165 yen, both well off recent highs near 118 yen for the dollar and 167.72 yen for the euro. The Australian dollar was at 88.62 US cents and 103.14 yen, compared with peaks near 90.80 US cents and 106.86 yen on Monday. In this environment, Japanese government bonds (JGBs) shone, pushing yields lower. The yield on the benchmark 10-year JGB slid 5 basis points to a two-week low of 1.645 per cent . Gold was little changed from Tuesday's close a day after striking a 28-year high.
It traded at $759.80 an ounce, off Tuesday's peak of $766.60.
Energy stocks pared early gains but once again outperformed the wider market, benefiting from strong oil prices. Australia's Woodside Petroleum edged down just 0.3 per cent after reversing early gains, while Asia's top oil and gas company, PetroChina gained 1 per cent .
After hitting a fresh record of $88.20 a barrel on Tuesday on supply fears and tensions between Iraq and Turkey over Kurdish separatist activity, US crude was trading at $87.62.
"The market is still very much focused on the Turkey-Iraq tensions for the short term but I believe it is overvalued by at least $10 and will probably come off within the week," said Makoto Takeda of Tokyo's Bansei Securities.
Comments
0 comment