Euro Mess Continues to Wear on Asia

Jakarta Globe, David Watkins, May 06, 2010

The economic fiasco in Europe has forced Asian stocks downwards. (AFP Photo)

Hong Kong. Fears that the euro-zone debt crisis will spread continued to take their toll on Asian markets on Thursday, as stocks fell and the euro hovered near one-year lows following deadly riots in Greece.

Violent demonstrations in Athens, where three people were killed in a bank firebombing, rattled investors who fear a 110 billion euro ($145 billion) EU-IMF bailout for Greece could prove to be insufficient. Concerns are also mounting that the deal will fail to shield Spain and Portugal from crippling market pressures.

European Central Bank council member Axel Weber warned that Greece’s fiscal crisis may have “grave contagion effects” in the euro area.

“The risk of a double-dip has certainly increased now,” said Clive McDonnell, head of Asian equity strategy at BNP Paribas SA in Singapore. “When risk aversion arises, it’s Asia that gets hit specifically.”

Investors in Tokyo had their first chance to react to a recent global sell-off after a three-day national holiday, with the headline Nikkei index tumbling 3.27 percent. Hong Kong fell 0.96 percent. The index has fallen more than 4.5 percent this week.

Investors were spooked by a warning from Moody’s Investors Service on Wednesday that it could cut Portugal’s AA2 sovereign rating by up to two notches.

“Its neighbors are unlikely to let Greece default. But investors will likely remain wary as long as there are uncertainties over the country’s fate and fiscal problems in other euro-zone economies,” said Kwak Joong-bo, at Hana Daetoo Securities in South Korea.

Markets have increasingly lost confidence in the euro zone, with the outlook worsening after the deadly riots in Athens and fears that other European nations face similar financial risks.

Greek President Carolos Papoulias called on the country to step back from the “abyss” after a day of violent protests against the latest budget cuts and tax hikes.

The ailing euro hovered near 14-month lows in Asian trade as bargain buying halted its recent slide, but mounting euro-zone debt worries continued to pressure the currency, dealers said.

The euro bought $1.2814 in Tokyo trade, up from a 14-month low of around $1.28 in New York late on Wednesday.

“At the moment, the Europe concern is the dominant risk. People are looking at thin facts and drawing some fast and possibly incorrect conclusions about how this might play out,” said Angus Gluskie, who manages about $300 million at White Funds Management in Sydney. “At some point, investors may start to distinguish the European situation from the reality in Asia and even the US.”

In Australia, the ASX lost 2.16 percent, with investors continuing to sell off resources stocks following Prime Minister Kevin Rudd’s announcement of a 40 percent tax on mining profits. Miner BHP Billiton ended 2.94 percent off while rival Rio Tinto fell 3.79 percent.

Shanghai’s composite index dived 4.11 percent to an eight-month low of 2,739.70 on Greek fears as well as China’s moves to cap lending on the mainland. Miners were also sold on concerns over the Australian tax plan.

China’s central bank announced over the weekend that it would raise banks’ reserve requirements by 50 basis-points, the third hike this year, as it reins in lending on property bubble and economic overheating fears.

“Sentiment is very weak and worries among investors about slowing economic growth have been intensifying,” said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai. “Stocks still have further room for declines.”

Asian markets on Thursday took their cue from Wall Street where shares fell 0.55 percent on Wednesday. In London on Thursday the FTSE 100 index fell slightly but there were small gains in France and Germany.

In Asia, Singapore closed down 0.72 percent, and Seoul closed 1.98 percent lower. Taipei fell 1.53 percent, Bangkok fell 1.46 percent and Kuala Lumpur ended down 0.28 percent. Manila fell 0.28 percent, Wellington closed down 0.95 percent, and Mumbai fell 0.59 percent.

AFP, Bloomberg