August 18th: Nikkei Down Most In 17 Years - 870+ Point Loss

Discussion in 'Trading' started by ByLoSellHi, Aug 18, 2007.

  1. Asian Stocks Tumble for Fourth Week on Mounting Credit Crisis

    By Ian C. Sayson

    http://www.bloomberg.com/index.html?Intro=intro3

    Aug. 18 (Bloomberg) --
    Asian stocks tumbled for the fourth week, posting their biggest drop in 17 years as a deepening U.S. housing slump and spreading credit crunch cooled investor demand for equities. BHP Billiton Ltd. and Toyota Motor Corp. fell.

    Mitsubishi UFJ Financial Group Inc. paced a slide among lenders after reporting losses related to U.S. subprime loans. Rams Home Loans Group Ltd. plunged after the Australian company failed to refinance short-term U.S. loans.

    ``It's not clear how long the subprime turmoil will continue so financial shares will be sold until this problem is solved completely,'' said Yasuhiko Hirakawa, who helps manage the equivalent of $80 billion at DLIBJ Asset Management Co. in Tokyo.

    The Morgan Stanley Capital International Asia-Pacific Index lost 8 percent to 137.14, erasing this year's gain. All of the MSCI's 10 industry groups fell, with the measure of materials producers that includes BHP posting the largest decline.

    Japan's Topix Index had its biggest weekly drop since the end of the asset inflation `bubble' of the 1980s and the Nikkei 225 Stock Average posted its largest loss since April 2000. All stock measures in the region fell.

    Benchmarks in South Korea and Hong Kong had their biggest fall since the September 2001 terrorist attacks in the U.S. Those in Indonesia and the Philippines completed their biggest weekly loss since a financial crisis swept across Asia nine years ago.

    The Standard & Poor's 500 Index fell 3.3 percent in the first three days of the week, wiping out all of its gains this year, on speculation that Countrywide Financial Corp., the biggest mortgage lender in the U.S., maybe forced into bankruptcy by creditors. It rallied Friday after the Federal Reserve cut the discount rate unexpectedly to ease the global credit crunch.

    `Correction Territory'

    Mitsubishi UFJ slumped to a two-year low after Japan's largest lender said it had about 5 billion yen ($42.6 million) in unrealized losses on investments related to U.S. subprime loans. The stock lost 10 percent to 1.06 million yen, pacing declines among the region's lenders.

    Australia's Rams lost half of its value after the Sydney- based mortgage lender failed to refinance A$6.17 billion ($4.8 billion) of short-term U.S. loans, forcing it to seek emergency funding from two of its providers. The stock plunged 50 percent to 89 Australian cents, 64 percent lower than the price at its initial share offering last month.

    ``We're pretty much in correction territory,'' said Jason Teh, who helps manage about $6.5 billion at Investors Mutual Ltd. in Sydney. ``What scares people with the global liquidity crunch in credit markets is that if companies can't raise money to expand, then there's a flow-on effect for the economy.''

    Mining `Victims'

    BHP led declines among the region's metal producers on speculation global growth will slow, reducing demand for raw materials and squeezing financing for new mines.

    BHP, the world's largest mining company, fell 6.4 percent to A$32.44. PT Aneka Tambang, Indonesia's second-biggest nickel producer, plunged 24 percent to 1,875 rupiah, its biggest drop since December 1997. Posco, the world's fourth-biggest steelmaker, tumbled 9.2 percent to 445,000 won.

    ``The miners have been the winners over the past few years so they've been the victims as people wind back their exposure to risk and retreat to safety,'' said Shane Oliver, who helps manage $83 billion at AMP Capital Investors in Sydney.

    Shares of raw materials also fell as a measure of six metals traded on the London Metal Exchange fell the most since 2005 when it tumbled 6.1 percent on Aug 16.

    Toyota, Canon

    Before the Fed's rate cut, investors spent the week selling high-yielding or riskier assets funded by yen-denominated loans. The yen fell in New York trade after the Fed's cut, trimming its weekly advance to 5.1 percent versus the euro and 3.5 percent against the dollar.

    Japan's exporters dropped as a stronger yen cuts the value of their foreign earnings in the local currency and makes their goods less competitive in overseas markets.

    Toyota Motor, the world's largest automaker by market value, slid 13 percent to 6,190 yen, the lowest since September. Canon Inc., the world's biggest maker of digital cameras, slumped 14 percent to 5,400 yen, the most since October 1998.

    ``The stronger yen prompted overseas investors to sell Japanese stocks to raise cash rather than put new money into the market,'' said Tomokatsu Mori, who helps oversee $7.4 billion in Tokyo at Fukoku Capital Management Inc. ``It's still too early to expect their return to the market.''

    Carry Trade

    Investors borrow funds in countries with low interest rates such as Japan to fund purchases of higher-yielding assets abroad, a practice referred to as the carry trade. Volatility in the market increases the risk of those bets and has been a primary reason for investors to pay back their yen loans, boosting the currency's value.

    Indonesia's Jakarta Composite Index posted the biggest drop among the region's stocks benchmarks, losing 14 percent. PT Telekomunikasi Indonesia, the nation's most valuable company, fell 9.6 percent to 9,850 rupiah, its biggest loss in almost two years.

    After Asian markets closed Friday, the Fed lowered the interest rate it charges banks and acknowledged for the first time that an extraordinary policy shift is needed to contain the subprime-mortgage collapse that began roiling global financial markets two months ago.

    The Fed, in a surprise announcement in Washington, cut the so-called discount rate by 0.5 percentage point, to 5.75 percent. Policy makers dropped language indicating their bias toward fighting inflation, and instead highlighted a rising threat to economic growth. That suggests officials will reduce the benchmark rate when they meet Sept. 18, economists said.

    Asian shares advanced in U.S. trading after the news. The Bank of New York Co.'s Asia ADR Index, tracking the region's American depositary receipts, climbed 2.7 percent to 152.12, the biggest gain since March 6.