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 Asian stock markets dip on global economic growth fears

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Registration date : 2011-05-06

PostSubject: Asian stock markets dip on global economic growth fears   Sun Aug 07, 2011 9:11 pm

Asian stock markets have fallen on Monday, extending one of the worst sell-offs in recent years, on concerns about the state of the global economy.

Japan's main Nikkei 225 index fell 0.9%, as South Korea, Singapore, Australia and Taiwan all dropped.

Friday saw shares slump globally, with trillions of dollars wiped off the value of global markets.

Jitters were fanned further by Standard & Poor's downgrade of the US credit rating, and European debt issues.

More wobbles?
Analysts warned that markets would remain volatile in coming weeks.

"The ratings downgrade has been an unprecedented event," said Alvin Liew of UOB Bank in Singapore.

"It has implications as it shows that growth prospects in the US are expected to remain sluggish over the next two to two-and-a-half years."

Standard & Poor's cut the US's top-notch AAA rating for the first time ever late on Friday, citing concerns about the size of the country's budget deficits.

The fear for many investors is that the US economy will slow further, and enter a double-dip recession.

This in turn would hurt Asia, which relies on the US, the world's biggest economy, to buy billions of dollars of exports every month.

"We are still dependent on demand from the US and Europe," said Arjuna Mahendran of HSBC Private Bank.

"A slowdown in those economies, will see a slump in consumer demand and that takes away a big support pillar for the region's growth," he added.

'Knee jerk'
With an increased sense of economic risk, investors continued to make changes to their asset holdings on Monday.

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We may not be looking at a double dip recession in the US, however, it is also not a zero risk economy”

Alvin Liew
UOB Bank
As a result, they sold crude oil, with the main US contract down almost 3%, on concerns demand would slide.

Gold, meanwhile, gained in Asian trading as investors looked to buy assets that offered less risk.

However, some analysts said that declines in the stock markets were overdone and many investors would use the slump in share prices as a buying opportunity.

"This is a knee jerk reaction," said HSBC's Mr Mahendran.

He added that despite the risks Asia's growth outlook was better than that of the US and Europe and investors would eventually have to shift their focus back to the region's markets.

"There will be a rotation towards buying Asia. Money will flow from developed to emerging markets," he explained.

Helping hand
Governments and policymakers have been trying to implement steps to halt the US and European crises, either in unilateral moves or in a coordinated fashion.

On Monday, the European Central Bank said it would buy eurozone bonds, hoping to instil confidence that some of its biggest economies will not default on their debt obligations.

Weak unemployment benefit data did nothing to lighten the mood of US traders
The bank did not say which bonds it would buy but analysts expect them to be from Italy and Spain

In a separate statement the G7 group of developed countries said members were "determined to react in a co-ordinated manner" to preserve financial stability.

This comes after Japan's government and central bank stepped into the money markets on Friday in an attempt to weaken the yen and help boost the country's exports and growth prospects.

"If private funds start to sell Treasuries, then central banks will start to buy them," said HSBC's Mr Mahendran. "They have to do this if they are to maintain their competitiveness."

Friday problems
The drop in Asian stocks comes after European markets fell on Friday.

Europe's main indexes, including the UK's FTSE 100 and Germany's Dax, fell by as much as 4%. This came after the US tumbled that most in more than two years on Thursday.

However, by the end of trading on Friday, US markets had stabilized and actually closed higher by 0.5%.

Analysts warn that any respite may be short-lived.

"We may not be looking at a double dip recession in the US, however, it is also not a zero risk economy," said UOB's Mr Liew.

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