FocusAsian equities bloodbath to persist

30 September 2008 06:55  [Source: ICIS news]

By Pearl Bantillo and Bohan Loh

SINGAPORE (ICIS news)--Asian equities may be in for more bloodletting as hopes for a resolution to the widespread credit crisis were dashed when the US Congress voted down a $700bn bailout package, economists and analysts said on Tuesday.

The shock defeat of the massive rescue plan, which provided a mechanism for banks to unload illiquid assets, sent the Dow Jones industrials tumbling nearly 780 points or about 7% on Monday and sparked a heavy sell down in Asia.

"Right now the worry is whether there is going to be a package. Timing is important because policy makers are losing market trust," said Dariusz Kowalczyk, chief strategist at CFC Seymour Securities in Hong Kong.

"With every day of declining market trust, the cost of bailout is rising, they should do more to reverse the decline in confidence. Passage of time is destructive," he added.

The Bush administration would have to come up with an alternative plan soon to stop the spread of market panic, analysts said.

"Something has to be passed here. Something has to be signed here. The US government has already seen a hint of what will happen if nothing is done," said Song Seng Woon, regional economist at CIMB-GK.

The rescue plan was hastily crafted over the weekend following the major shakeup in the US financial sector, which saw the collapse of Lehman Brothers, the takeover of Merrill Lynch by Bank of America and the $85bn rescue of American International Group in just a week.

The list of casualties continued to grow, with the seizing of Washington Mutual last Friday and the government-orchestrated sale of Wachovia Group, the sixth largest bank in the US, to Citigroup.

European financial institutions were reeling from the US crisis, with the part-nationalisation of UK mortgage lender Bradford & Bingley and Belgian-Dutch financial institution Fortis on Monday.

Regional indexes plunged, taking lead from the Dow Jones Industrial Average which shed 6.98%, or 777.68 points to 10,365.45 and the NASDAQ Composite Index that lost a staggering 9.14%, or 199.61 points, to 1,983.73.

At 11:30 local time (03:30 GMT), the Singapore Straits Times Index fell 92.92 points to 2,268.42 while Hong Kong's Hang Seng Index lost 602.70 points, or 3.37%, to 17,277.98 points.

At the same time, Japan's Nikkei 225 shed 544.54 points, or 4.64%, to 11,199.07.

"A lot of fear is built into it. The Dow’s slump triggered the flight to safety. People are getting out of equity," said Lorraine Tan, equity strategist for Asia at Standard & Poor’s.

Risks of contagion for Asia’s banking system were not significant given its relatively small exposure to the US subprime mortgages. A crisis of the same magnitude as the Asian financial crisis of 1997 was unlikely, analysts said.

CFC Seymour’s Kowalzcyk pegged the subprime losses of Asian banks at about $25bn.

"Asian banks have not been hurt that much but there is the issue of sentiment and panic, which is a global phenomenon," he said.

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By: Pearl Bantillo
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