Hong Kong - Asian stocks fell to a 4-year low on Thursday on growing fears emerging market weakness will prolong a global recession and depress corporate earnings, pushing the yen to a 6-year high against the euro.
European stock futures were only down slightly, helped by a rise in US stock futures.
Investors have mostly sought refuge in government debt of the eurozone, Japan and the United States as well as the yen, after credit market stabilisation in the last week unearthed a renewed focus on the adverse impact of the financial crisis on real economies, especially in emerging markets.
The cost of insurance against sovereign debt default in countries such as South Korea, Indonesia and the Philippines soared, with a sense of panic festering two days after Argentina moved to nationalise its pension system. The step was interpreted by investors as a desperate measure to stave off default.
Markets in developing countries, especially those that depend on portfolio flows to balance their current accounts, were abandoned overnight, with almost no one spared from a sharp slowdown in the global economy that has pushed crude prices below $70 a barrel and dragged copper prices to a three-year low.
The outlook for export-dependent Asian economies darkened, hitting the shares of many high-profile companies that have staked their business on overseas sales, such as Samsung Electronics and Canon.
"Even after a series of concerted efforts by governments to stabilise the financial markets, it seems that the global economy is still under pressure and will likely slip into a recession," said Daniel Chan, senior investment strategist at DBS Bank in Hong Kong.
The MSCI index of Asia-Pacific stocks outside Japan fell 5.5% to its lowest since October 2004
The global emerging markets index was down 3.7% to a near 4-year low, and its 35 % drop so far in October has outpaced the 25% decline on the all-country world index.
Japan's Nikkei share average fell 2.5%, though it was down as much as 7% earlier in the session.
The index cut losses as US stock futures extended gains following a story in the Wall Street Journal saying the US government will consider a $40bn plan to slow home foreclosures.
South Korea's KOSPI index fell 7.4%, led by shares of Samsung Electronics and steel producer POSCO.
Hong Kong's Hang Seng index was down 4.7% at the lowest since April 2005.
Some property stocks managed to gain after the Chinese government late on Wednesday announced policies to increase homeownership China Overseas Land's stock rose 2.1%, despite a 6.8% drop in mainland Chinese stocks listed in Hong Kong.
"Yesterday's move can be considered part of an overall effort to give a light stimulus to the economy, but in my view is primarily focused on the real estate sector. These changes also illustrate that the Party is capable of taking proactive steps to deal with a changing economic environment," said Andy Rothman, China macro strategist with CLSA in Shanghai.
"A good time to look at residential developer stocks," he said in a report.
Yen in demand
The US dollar struck a 2-year high against the euro while the yen hit a near 6-year peak against the European single currency as investors bailed on bets on higher-yielding and emerging market currencies built up in recent years.
The euro slid as low as ¥123.40 its lowest since 2002, before cutting losses to trade at ¥125.14. The dollar fell to a seven-month low of ¥96.85 on trading platform EBS.
Analysts at banks such as Citigroup and Morgan Stanley expect the yen to continue strengthening as Japanese banks and investors slash their overseas exposure, though economic conditions in Japan itself are deteriorating.
Japan's trade data showed exports in September were much weaker than expected, with exports to the United States down 11% from the same month last year.
"Demand is weakening across the globe. Not to mention the United States, falls in exports to the European Union are accelerating," said Junko Nishioka, an economist with RBS Securities in Tokyo. "Rising anxiety over the financial sector appears to have affected economic activity."
The Baltic Exchange's dry sea freight index, a market-based measure of demand for raw materials, fell on Wednesday to a 6-year low as commodity prices collapsed and slowing demand reduced shipments. The index has plummeted 89% in the last four months.
US light crude oil prices clung to small gains, up 30c at $67.05 a barrel, after hitting a 16-month low of $66.20 on Wednesday. Oil prices have fallen by a third in October in anticipation of a steeper decline in demand from big consumers such as the United States and China.
- Reuters