Asian markets hunker down; fear more bank pain
By Tom Miles
Reuters
First Posted 15:58:00 04/22/2008
Filed Under: Stock Activity, Markets & Exchanges, Banking, Oil & Gas - Upstream activities, Foreign Exchange Markets
HONG KONG -- Asian shares fell on Tuesday as investors flinched at more bad news from the banking sector while fears of fresh dollar weakness hurt exporters and kept oil within sight of its latest record of nearly $118 a barrel.
Major European markets also fell in early trading. London's FTSE 100 dropped 0.2 percent, the German DAX slipped 0.4 percent and the French CAC 40 was off 0.3 percent.
"Wall Street has been surprisingly resilient, but we don't know if it will last, and we have a lot of US and Japanese earnings to get through," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
"There are still a lot of question marks left."
Investors hoping that an end to the credit crisis might be in sight were brought back to earth on Monday when Bank of America Corp., the top US retail bank, showed a 77 percent drop in quarterly profit and regional bank National City Corp. said it was raising $7 billion in capital.
More bad news from banks could be on the way after Britain's Royal Bank of Scotland announced a 12 billion pound ($24 billion) rights issue to cover a potential 5.9 billion pound write-down. Other British banks could follow suit.
"The whole stock market is twitchy, the financials in particular," said Peter Vann, head of investment research at Constellation Capital Management. "Some of the US banks are definitely going to have some large losses or a considerable reduction in profits because of all the riskier activities."
Although the latest bank woes unsettled investors, the CBOE Volatility Index, a barometer of jitters on the US equity market, showed no new signs of panic. It barely rose, ending Monday with a reading of 20.5, its second lowest close this year.
Japan's Nikkei stock average closed down 1.1 percent, led lower by blue chip exporters such as Honda Motor Co. Ltd. as a stronger yen prompted investors to lock in profits after the market climbed for five days.
Stocks across the rest of Asia, measured by MSCI's index, fell 0.65 percent.
China's benchmark Shanghai Composite Index touched a 13-month low, led by steel and metal-related stocks, as investors were disappointed by weak government measures to bolster the market. The index has fallen by half since last October.
In Seoul, shares in some Samsung Group units fell after chairman Lee Kun-hee, indicted last week for tax evasion, said he was quitting his post at South Korea's largest conglomerate.
DOLLAR STRUGGLES
The continued worries about the US economy and fears of another salvo of bank woes kept the dollar under pressure against the yen and the euro. The slide in Asian stocks prompted investors to trim risky yen carry trades, in which players use the low-yielding Japanese currency to finance purchases of assets offering higher returns elsewhere.
"Weaker share prices sparked yen buy-backs, while some investors also booked profits on the dollar's recent rise against the yen," said a trader at a Japanese trust bank.
The euro also gained after European Central Bank Governing Council member Klaus Liebscher said there was no reason for pessimism on euro zone growth, suggesting the ECB would keep rates at a six-year high of 4.0 percent for a while.
"It's only a matter of time before the euro hits the key $1.6 level as investors believe there are fewer risks in buying the euro," said Hiroshi Yoshida, a trader at Shinkin Central Bank.
The euro was trading at $1.5875, not far from last week's record high of $1.5985, while the dollar was at 103.06 yen, having hit a seven-week peak of 104.66 yen last week.
The weak dollar has helped prices for commodities such as oil hit record highs this year.
But US crude oil prices needed little currency support on Tuesday, remaining close to a record high of $117.83 a barrel, hit on Monday after rebel attacks cut Nigerian supplies and a Scottish refinery strike threatened North Sea production.
On the demand side, crude imports to China, the number two user, surged a quarter from a year ago to 4.07 million barrels per day in March, far above previous records, customs data showed.
US light crude was 0.2 percent lower at $117.25 a barrel.
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