Saturday, October 25, 2008

World financial markets continue tailspin

Global stocks continued to fall on Friday as investors withdrew from emerging markets amid growing worries about a recession.

The plummet began in Asia as investors shrugged off Thursday's rebound in European and North American markets and sent stocks in the region into their third day of decline.

Japan's Nikkei 225 stock average slid 9.6 per cent to 7,649, its first close below 8,000 since May 2003.

South Korea's stock market also fell sharply as foreign investors fled the country's stock market and figures showed the economy there was slowing. The Kospi dropped 10.6 per cent to 938.75, falling below the 1,000 mark for the first time in more than three years.

In Hong Kong, the Hang Seng fell 7.8 per cent. Markets in India, Thailand, Indonesia and the Philippines were also down sharply as investors bailed from emerging markets to cut their exposure to risky assets.

"Funds are pouring out of emerging markets," said Linus Yip, a strategist at First Shanghai Securities in Hong Kong. "A lot of money that flowed into the region during the last five years from the U.S. and Europe is being cashed out. The global crisis has come to Asia."

With major developed countries falling into recession, it is hard to get any confidence about economic recovery, said Darren Winder, an equity strategist at Cazenove in London.

Dow drops sharply at open

The Dow Jones industrial average showed a sharp drop on Friday morning with futures down 550 points, the maximum daily price change.

In Europe, Germany's benchmark DAX index was down 10.76 per cent at 4,033.27 on Friday.

The French CAC40 was down 10 per cent at 2979.95 while Britain's FTSE 100 was 8.67 per cent lower at 3,733.33

Shares in Europe's automotive companies fell hard on Friday following the release of third quarter figures. Truck-maker Volvo AB was down 19 per cent and PSA Peugeot-Citroen fell 12.4 per cent. Daimler AG and Fiat Spa also warned about lower-than-expected profits.

Growing fears about potential sovereign debt default in some developing economies has further accelerated the move out of emerging market assets and increased an unwillingness among investors to take risks, said some analysts.

"Nobody is willing to take risks under the current circumstances, and risk aversion will only accelerate," said Mitsuru Sahara, senior manager of foreign exchange sales for Bank of Tokyo-Mitsubishi UFJ in Tokyo.

Surging yen

The U.S. dollar fell as low as 90.89 yen on Friday as traders reacted to U.S. job data that showed rising levels of unemployment claims and spurred speculation the Federal Reserve might cut interest rates to help the sagging American economy.

It is the lowest the dollar has dipped in comparison to the yen since August 1995. A strong yen erodes Japanese exporters' earnings.

The yen is often used as currency to fund riskier investments, but when investors are worried about losing money in emerging markets, they undo those trades.

"We are getting used to wild swings in the markets, but today's moves verge on the bizarre," said Julian Jessop, chief international economist at Capital Economics.

Another catalyst for the day's fall was concern about corporate profitability, said Jeremy Batsone-Carr, head of private client research at Charles Stanley & Co. Ltd.

Sony slashes earnings forecast

Shares of electronics giant Sony Corp. plummeted 14.1 per cent after it slashed its earnings forecast for the fiscal year to $1.5 billion US. It had previously expected to bring in $2.4 billion in profits.

Sony's earnings revision "was yet another indicator that the global economy is really slowing," said Yutaka Miura, senior strategist at Shinko Securities in Tokyo.

The combination of a surging yen and revised corporate earnings in Asia unnerved investors in Tokyo and they began dumping shares of major exporters like Sony, Toyota Motor Corp. and Panasonic Corp.

With files from the Associated Press and Reuters

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