PETALING JAYA: For those who predicted that the era of American dominance in the economic and political spheres was waning with the rise of China and India, the stream of bad news from Wall Street and its negative impact on major markets must surely come as a reality check.
It has put to rest ideas about decoupling — that emerging markets won’t be affected by a downturn in the United States. The ideas were bandied about by analysts and economists until the first half of the year when it became obvious a combination of US financial woes and high oil prices had begun to negatively impact investors’ confidence.
This has been made worse by the rejection by US lawmakers of a US$700bil bailout package for the country’s ailing financial services industry on Monday. The news caused the Dow Jones Industrial Average to plunge to a 21-year low of 10,365.45, losing 777.98 points or 6.98%, and wiping out US$1.2 trillion in value.
Standard & Poor’s North America Equity Research chief technical strategist Mark Arbeter said in a report that the market was close in time to “a major market bottom” although the level at which it would bottom out was still debatable.
Meanwhile, Citigroup Inc analyst Yiping Huang said the fading hopes for a speedy rescue plan would accelerate the downward spiral of the financial markets, not only in the United States but also in other countries as well.
“Rejection of the bailout plan in the US could set into new motion the vicious cycle between deleveraging and falling asset prices,” he said, adding that there was a possibility the Federal Reserve might shift its focus to an interest rate cut with the European Central Bank and the Bank of England following suit.
Asian bourses, which were closed when the measure failed to pass after a four-hour debate in the US House of Representatives, began yesterday’s trading firmly lower and were largely down except for Hong Kong’s Hang Seng Index, which was up 135.53 points, or 0.76%, at 18,016.21.
Tokyo’s Nikkei 225 closed down 483.75 points, or 4.12%, to 11,259.86, Singapore’s Straits Times Index lost 2.43 points, or 0.10%, to 2,358.91 and Seoul’s Kospi Index fell 8.30 points, or 0.57%, to 1,448.06.
Singapore’s CapitaLand Ltd saw its share price drop 18% to S$2.66 in intraday trade on fears the continuing crisis in the United States might affect housing demand. It was the biggest one-day drop since Jan 9, 1998 for the South-East Asia’s largest property developer. City Developments Ltd, the island state’s number two developer, fell 15% to S$7.33, according to Bloomberg.
Manufacturers of big-ticket consumer items also felt the impact from the US with Japanese vehicle makers’ share prices tumbling. Toyota Motor Corp fell 4.6% to 4,380 yen while Honda Motor Co and Nissan Motor Co lost 3.7% and 4% respectively to 3,090 yen and 697 yen.
European bourses, which were down on Monday, pared their losses yesterday following speculation the US government’s bailout plan might be revived. Dexia SA, a Brussels-based firm that is the largest lender to local governments, saw its share price rise 15% in intraday trade as the Belgian and French governments put together a 6.4 billion euros rescue plan to help the company cope with the financial turmoil.
This followed a string of bailouts in Europe with Britain’s Bradford & Bingley Plc nationalised, Germany’s Hypo Real Estate Holding AG given a 35 billion euros loan guarantee to fend off bankruptcy and a 11.2 billion euros lifeline thrown to Fortis by the governments of Belgium, Luxembourg and The Netherlands.
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