Asian shares sank yesterday on fears that a deepening US financial sector crisis and soaring oil costs would further sap faltering world economic growth.
The plunge came as concerns grew about the solvency of US mortgage finance titans Fannie Mae and Freddie Mac, which underpin trillions of dollars in home loans and whose failure would be viewed as catastrophic.
Japan, Asia’s biggest bourse, slid nearly 2 percent, Taiwan tumbled 4.5 percent, Hong Kong fell 3.8 percent and China closed down some 3.5 percent even though the US government has just extended a lifeline to the mortgage giants.
“The market has been absolutely savaged today,” said Dominic Vaughan, a senior dealer at CMC Markets in Australia, where the stock market ended more than 2 percent down.
“There is still a belief that any measures done by the US government or the US Federal Reserve may not be enough,” he said.
The US plan announced on Sunday provides access to substantially increased credit to the two firms, which own or guarantee almost half of all US home loans and are in crisis owing to the worst US housing downturn in decades.
But the initiative has so far failed to patch up investor confidence, which had already been shredded by slowing economic growth and falling business profits as inflation surges thanks to soaring crude oil and food prices.
Oil was trading at around US$145 per barrel yesterday, only a little shy of all-time highs above US$147 scaled last week. The price of black gold has doubled over the past year and is up five-fold since 2003.
Elsewhere in Asia, Indian shares plunged 4 percent, Singapore was more than 3 percent down and South Korea closed 3.2 percent lower as trading screens across the region turned red.
“We may witness more selling pressure in the near term on concerns that the worst of the US credit crisis is not over yet,” Linus Yip at First Shanghai Investments in Hong Kong told Dow Jones Newswires.
Asia’s smaller markets also suffered, with New Zealand share prices hitting a three-year low after a 1.3 percent slide. Indonesian shares were down more than 1 percent, while the Philippine market closed 1.79 percent lower.
“Negative global news is keeping investors away,” said Bhaskar Kapadia of Pyramid Securities in India.
Yesterday’s slide continued this year’s rout, with the Asia-Pacific stock market as a whole down approximately 18 percent since the start of the year.
Shares began sliding last year after a default crisis among “subprime” — or riskier — US mortgages emerged. Banks have lost billions of dollars on investments tied to the mortgages, precipitating a global credit crunch.
Investors are anxiously waiting for results this week from key US financial companies, which could reveal yet more subprime-related losses.
China, which is battling high inflation, is also scheduled to release economic data.
European shares also sank yesterday and investors were braced for more volatility on Wall Street later in the day.
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