Stock markets slip again in Asia, but fears ease
SINGAPORE: Asian stock markets continued to slide Thursday amid concerns that a slowing U.S. economy could hurt the regions export-dependent economies, but the sell-off that began in China on Tuesday appeared to be abating after reassuring comments by the chairman of the U.S. Federal Reserve.
Investors seemed to take heart after the Fed chairman, Ben Bernanke told a congressional panel Wednesday that the slump in stock prices did not change the forecast for moderate U.S. economic growth. His testimony helped send the Dow Jones industrial average up 52.39 points, or 0.4 percent.
Bernankes optimism was echoed by economists around Asia, who said that the latest sell-off was more a sign of investor anxiety over record-breaking rallies in recent months than a reflection of any fundamental downturn in Asias economic prospects.
“Were seeing some blowing off of some froth in the equity markets, and thats probably a good thing,” Peter Morgan, regional economist at HSBC in Hong Kong, said of the slide this week in Asian markets.
Morgan likened falls to the stock downturn in emerging markets last May, noting that most markets had recovered by October.
“We dont think it has any major macroeconomic significance,” he said.
Taiwans benchmark stock index led the region lower Thursday, closing down 2.83 percent. Stocks in China also fell, with the benchmark Shanghai Composite index shedding 2.91 percent.
Markets elsewhere, however, appeared to be regaining their footing, although Japans Nikkei 225 and Hong Kongs Hang Seng index, fell 1.55 percent and 0.86 percent, respectively. Indias benchmark index rose by 1.4 percent and stocks in the Philippines jumped by 4 percent.
“The economic outlook remains fairly robust,” said Sailesh Jha, a regional economist at Credit Suisse in Singapore.
If anything, analysts and economists said, this weeks jolt to financial markets underscored just how predictable market rallies had become. While the scale of the declines were remarkable, analysts noted an overall absence of panic.
Trading in Asia financial markets have become much more stable than in the years preceding the financial crises of 1997.
According to a report this week from Nomura International in Hong Kong, volatility in global financial markets is at record lows. Even Asias emerging markets, which 15 years ago offered investors a roller-coaster ride, now offer a seemingly sedate ride.
Underpinning the sustained rally in Asian markets over the past year have been low global interest rates Д especially in Japan Д and what economists call excessive savings among Asian exporting nations. The resulting wave of inexpensive funds has sent international investors scampering into virtually ever nook and cranny of the global economy in search of high-yielding returns.
Even after Japans central bank doubled its benchmark interest rate last month, early signs are that Japanese rates remain relatively low enough to keep the carry trade intact.
Chinas market rally, analysts said, has been driven not by foreign investors dabbling in credit derivatives or the carry trade, but rather by its own citizens.
“It was retail savers taking money out of banks and going out and buying stocks,” said Jonathan Anderson, an economist at UBS in Hong Kong.
Analysts said the gains had made Chinas stock prices relatively expensive, with the average price-to-earnings ratio rising to 23. Many investors consider a ratio of 15 or less more appropriate for riskier, emerging markets.
