UpdateAsia markets rebound on hope for US plan

19 September 2008 11:48  [Source: ICIS news]

(recasts lead, adds quotes and includes closing levels for stocks and indexes)

SINGAPORE (ICIS news)--Asian markets closed higher on Friday, rebounding from the slump earlier in the week, as investors welcomed the the US government’s plan to step in more decisively to contain the financial crisis and stabilise the markets.

Major petrochemical stocks in the region joined in the rally. At the close of trading, South Korea’s SK Energy jumped 6.70%, LG Chemical rose 3.45% and Hanwha Chemicals gained 2.90%. The Kospi composite index was up 4.55% at 1,455.78.

In Hong Kong, oil refiners Sinopec and PetroChina rallied 14.24% and 10.74%, respectively. The Hang Seng Index jumped 9.61% at 19,327.73.

In Japan, Mitsubishi Chemicals edged up 9.67%, Mitsui Chemicals up 3.44% and Asahi Kasei 1.13% higher. The Nikkei 225 index advanced 3.76% at 11,920.86.

In Taiwan, Formosa Chemical & Fibre Corp rose 6.84%.

The US' Dow Jones Industrials Average Index jumped 3.86% on Thursday following reports that a comprehensive solution was being worked out to rid the banks of massive bad debts that arose from subprime loan crisis last year.

Details of the comprehensive package intended to contain the crisis are in the works following a meeting between US Treasury Secretary Henry Paulson, Federal Reserve chairman Ben Bernanke and US Congressional leaders late on Thursday.

The plan was thought to propose moving troubled assets from the balance sheets of American financial services companies into a new institution and was aimed at removing the devalued assets from the markets.

Stock market indexes in the region tracked the US markets, but with big corporate names such as Lehman Brothers, Merrill Lynch and American International Group (AIG) caught up in the crisis, market players were sceptical that any market rallies would last.

“The financial system in the US has deteriorated rapidly. I certainly would not rule out further deterioration,” said Morgan Stanley Asian equity strategist Malcolm Wood.

Volatility could persist until investors are convinced the proposed solution to the crisis would work, analysts said.

"This is a key short-term issue - whether investors will begin to feel that this is a solution to this financial market issue in the US," said Wood.

"If that is for real, then we can get a bit more of a rally here until the markets figure out exactly the ramifications [of the proposed solution]," he added.

"From the Asian perspective, if we can see signs of US stabilising, we can snap back [up]."

Economists said the US financial crisis might push the world’s biggest economy into recession and drag the rest of the world with it. Asia would not escape unscathed given that countries in the region count the US among their major export markets.

"The fundamentals in Asia are obviously slowing but still positive," Wood said. 

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By: Pearl Bantillo
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