Asia markets follow US share drop

Concerns are increasing over the scale of the slowdown

Asian markets have plummeted after the Dow Jones share index in New York fell to its lowest level in five years, amid fears of a protracted global recession.

Japan’s Nikkei index ended 6.8% down and Hong Kong’s main index fell 5.5%.

Data showing Japan’s exports to Asia dropped in October for the first time since 2002 added to fears over the scale of the economic downturn.

On Wednesday, Wall Street shares fell 5% after the US central bank slashed its economic growth forecasts for 2009.

‘No positives’

Japan and other Asian nations are heavily reliant on exports.

Sales to other Asia nations have helped to limit the impact for Japanese exporting firms suffering from lower demand from the US and Europe.

But exports to Asia fell 4% last month from a year earlier, showing the extent of the global slowdown.

Several East Asian countries – including Japan, Singapore and Hong Kong – are already in recession and the thought that the US may be about to join them has been enough to send shares tumbling across the region.

Share prices in Tokyo and elsewhere slumped

Bad news from the US worries Japanese firms like Toyota and Nintendo which usually depend on American consumers to make a lot of their profit, our correspondent adds.

“We’ve gone past the poor sentiment stage,” Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong, told the Associated Press news agency.

“People are looking for any kind of positive and there are just no positives out there. Everyone seems to be united in the depressed global outlook. Whether it’s commodities or equities, everything seems to be on a downturn.”

US slowdown

On Wednesday, the US Federal Reserve said the country’s gross domestic product – the value of all goods and services – could be flat or grow only marginally this year, and might shrink in 2009.

It said positive economic growth was only likely to return in 2010 and predicted further interest rate cuts might be necessary.

Month-on-month US consumer prices fell by 1% in October – the biggest drop in 60 years – which has reinforced fears of rapid slowdown.

Car problems

Carmakers were among the biggest fallers as the Dow Jones average closed down 427 points at 7,997 on Wednesday – dropping below the 8,000-level for the first time since 2003.

GM shares were down 15% at a 66-year low, while rival Ford slumped to a 26-year low.

Prospects for an industry bail-out remain uncertain and politicians have been arguing over a compromise deal.

Chief executives from General Motors, Ford and Chrysler say the firms could collapse unless they receive aid fast – which could lead to millions of job losses across the US.

But the automakers have faced fierce questions on Capitol Hill about their request for a $25bn (£16.6bn) bail-out deal.

Investors are concerned about how a possible bankruptcy among US carmakers could further hurt an already fragile economy.

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Investors cautious amid turmoil

Asian share prices have continued to fall as confidence remains low

European stocks rise in cautious trade as Lloyds TSB’s takeover of UK lender HBOS dispelled some of the gloom hanging over financial markets.

Asian shares had earlier fallen sharply on fears that more companies could fall victim to the global financial crisis.

London’s FTSE 100 index was up 0.8% at 4,951 points shortly after the open and France’s main stock index rose 0.6%.

In Asia, Tokyo’s Nikkei share index dropped by 2% while Hong Kong’s main stock index slid by 7%.

Share indexes in Shanghai, Taiwan and India fell by between 3 and 5%.

Hong Kong’s Hang Seng index dropped below the 17,000 mark and Australian shares closed 4% lower.

On Wednesday, the Dow Jones index of leading US stocks fell by more than 4%.

Flight to safety

Brokers in Japan say the markets are in freefall because investors fear the US government’s efforts to stop the turmoil in the financial system are not working.

As a result, investors are looking for safer places to put their money than stocks and shares.

Traders saw plummeting shares on Wall Street on Wednesday

Many Japanese institutions have assets insured by AIG, the insurance company that was rescued by the US government on Tuesday.

And in Singapore, for the second day running, hundreds of AIG policyholders queued up outside its offices trying to surrender or cancel policies they fear could turn out to be worthless.

Feverish speculation

The US Federal Reserve’s AIG rescue package followed the collapse earlier this week of 150-year-old US investment bank Lehman Brothers, which sent shockwaves through the world’s financial community and sparked a global share price plummet.

Another investment bank, Merrill Lynch, has since been sold off to Bank of America. And in the UK, HBOS is being taken over by Lloyds TSB in a £12.2bn deal.

There has also been feverish speculation about the future of two other leading US banks – Morgan Stanley and Washington Mutual.

The New York Times quoted unnamed sources as saying an auction for Washington Mutual was under way. The Wall Street Journal reported that both banking giant Citigroup and Wells Fargo had expressed an interest in a takeover.

Meanwhile the Reuters news agency reported that Morgan Stanley, the second largest US investment bank in the US which on Wednesday saw a quarter of its value wiped off its share price, had held preliminary takeover talks with Wachovia.

None of the companies involved has made any comment on the speculation and no negotiations can be confirmed.

Banks take action

The Bank of Japan has injected another 1.5 trillion yen ($14.4bn; £7.9bn) into money markets to help stabilise them. Australia took similar steps.

The Japanese central bank’s injection was the third consecutive day it had tried to shore up cash markets as the Nikkei trades at a three-year low.

Across Asia, central banks have already pumped $33bn into money markets this week in an attempt to allay investors’ concerns and ensure the supply of funds does not dry up.

Investors edgy as US stocks fall

Investors are concerned that financial markets will remain volatile.

US stock markets sank in early trade on fears the bailout of insurance giant AIG would not be enough to dispel the gloom engulfing the financial world.

AIG’s rescue and a potential takeover of UK lender HBOS had earlier boosted confidence in Asia and Europe.

But markets were volatile as nervous investors tried to make sense of the dramatic events that have unfolded in recent days.

The widely watched Dow Jones industrial average was down 1.9% at 10,849.

Top UK mortgage lender HBOS, which has faced heavy selling this week, fell as much as 50% before recovering after it emerged that it was in advanced talks to be taken over by Lloyds TSB.

HBOS shares were down 13% at 160 pence in London, the biggest faller in the FTSE 100, after being the top gainer at one point.

It has been a tumultuous week on financial markets, with significant changes in the financial landscape.

Key events on Wednesday included:

• Beleaguered HBOS in merger talks with Lloyds TSB after a steep fall in its share price
• US insurance giant AIG being bailed out by the US government
• Volatile stock markets as global investors remain nervous
• Trading on the Russian stock exchange being suspended
• Barclays snapping up key assets from Lehman Brothers after its bankruptcy

I don’t think anyone has got any or much confidence in market direction for more than a few days Darren Winder, Cazenove

The FTSE 100 index of top UK shares was down 0.48% at 5,001.4, reversing earlier gains, with some banking shares hard hit.

Shares in Barclays were up 9.8%, Lloyds TSB climbed 7.9% while Royal Bank of Scotland was down 2.6%.

Topsy-turvy trade

Trade is likely to remain rocky amid concern that financial system instability will continue after the dramatic events of the past few days.

“I don’t think anyone has got any or much confidence in market direction for more than a few days,” said Darren Winder, a strategist at Cazenove.

AIG’s bail-out follows the collapse of US investment bank Lehman Brothers, which caused share prices to plummet across the world’s financial markets.

Another investment bank, Merrill Lynch, has been sold off to Bank of America.

France’s Cac 40 share index was down 0.24%, while Germany’s Dax index was 0.64% lower, reversing earlier gains as Wall Street opened.

Russia’s stock exchange suspended trade following steep falls in shares.

Asian shares had a mixed session. Stocks in Tokyo, Taipei, and Seoul all rose, although prices in Hong Kong, Shanghai and Australia lost ground.

Japan’s Nikkei 225 index ended up 1.2% at 11,749.79, having risen by as much as 2.3% earlier in the day. The index had hit a three-year low on Tuesday.

Hong Kong’s Hang Seng index ended down 3.6% at 17,637.19 points.

Global economy woes shake markets

Japanese shares felt the force of the economic uncertainty

Fears about a global economic slowdown, heightened by worsening US job figures, have continued to undermine stock markets around the world.

London’s FTSE 100 index lost 2.3% – taking its weekly decline to 7% – its biggest since July 2002.

Markets in Paris and Frankfurt fell by 2.5% as economy concerns spread.

On Wall Street the Dow Jones index clawed back early losses to edge higher despite figures showing the US economy shed 84,000 jobs last month.

But the benchmark US index still had its worst week since May.

Earlier, Japan’s main share index fell nearly 3% while markets in Hong Kong, China, Australia and India all slid 2%.

‘Ugly’ data

The US labor market figures – which showed the unemployment rate rising to 6.1% – were a further jolt to investors who have had to swallow a slew of poor economic data in recent days.

Economists had been expecting 75,000 jobs to be lost while the government also revised upwards.

“This was an ugly number that pretty much confirms that our economy continues to trend downward,” said Jack Ablin, chief investment officer of Harris Private Bank.

“This just knocks the legs out of any hope of seeing much economic improvement right now.”

‘Uncertainty’

Amid the uncertainty, few investors are willing to buy Masayuki Otani, Securities Japan

The FTSE 100 closed down 2.3% at 5,240.70 points. The last time it lost so much value in a week was more than six years ago in the wake of financial scandals such as Enron and WorldCom.

Markets in Paris and Frankfurt continued their recent downward trend, both the Cac-40 index and the Dax-30 dropping about 2.5%.

The Dow Jones index, which lost 3% on Thursday, rose 32.73 points, or 0.3% to 11,220.96, but still ended down 2.8% on the week.

“Given the fact we were down so much yesterday we’re seeing a bit of a reflex rally with investors wanting to take advantages of some of the bargains,” said Bucky Hellwig, senior vice president at Morgan Asset Management.

The Nasdaq index slipped 3.16 points, or 0.1% to 2,255.88, ending the week 4.7% lower.

Earlier Japan’s benchmark Nikkei index fell 361.54 points to 12,196.12 amid a widespread sell-off of shares in Asia.

The Hang Seng index fell more than 3% in Hong Kong while markets also fell sharply in China, Australia and India.

“Amid the uncertainty, few investors are willing to buy,” said Masayuki, Otani, chief market analyst at Securities Japan.

“Several bad things happened at once,” he added, explaining the fall.

Gloom

Worries about inflation have prevented central banks in Europe from cutting interest rates to help forestall a slowdown.

But analysts believe this could change soon with economic forecasts across Europe looking increasingly gloomy.

The European Central Bank cut its 2009 growth forecast from 1.5% to 1.2% on Thursday while the UK economy stalled in the second quarter.

In a separate development, the Russian rouble fell against the dollar a day after Russia’s central bank intervened to support the currency amid concerns about a flight of foreign capital after the conflict with Georgia.

The central bank sold up to $4bn in reserves, the Financial Times reported, after the rouble slipped to its lowest level since February 2007.