Rate cuts fail to bring Asia-wide rally
By Goh Eng Yeow
EFFORTS by Asian central banks to join their Western counterparts in a coordinated effort to cut interest rates failed to produce the regionwide rally many expected yesterday.
Markets in Singapore and Hong Kong both rebounded by over 3 per cent as investors responded to the moves to calm the global turmoil by snapping up battered banks and other blue chips.
But traders in Tokyo, Shanghai and Sydney stayed cautious, and adopted a wait-and-see attitude, which smothered attempts by their battered blue chips to make a comeback.
At least European markets caught the more optimistic mood, rising around 1 to 2 per cent each after sinking to five-year lows on Wednesday.
Market experts are sceptical that the credit crisis can be resolved simply by a series of interest rates cuts. For some, this is beginning to resemble the Sars crisis, when economies such as Singapore and Hong Kong almost came to a standstill.
‘For me, the biggest scare was the Sars crisis in 2003. Let’s hope that things work out more happily this time,’ said Phillip Securities managing director Loh Hoon Sun.
But the note sent out by private bank LGT reflected the anxiety of many: ‘Keep in mind that while lower rates help, it is fear and lack of trust that is ultimately hindering banks. Please do be patient and continue to stay in cash.’
Still, there were some bright spots.
An initial lack of European cooperation was blamed for triggering the stock market rout on Monday, so efforts by France, Belgium and Luxembourg to save troubled bank Dexia by allowing it to borrow with state guarantees were seen as a sign that countries were cooperating.
And a fall in the yen against the greenback and other regional currencies suggested that hedge funds might have stopped dumping regional stocks. The yen had soared over the past week, as funds repaid massive yen loans taken on huge bets over emerging market equities.
On Wall Street, the mood lightened with the Dow Jones Industrial Average opening 169 points higher, after closing down for the previous six sessions.
Traders there had shrugged off fears of a further selldown in financial stocks after the lifting of a temporary short-selling ban. This followed a report that the United States might use its US$700 billion bailout (S$1 trillion) fund to take stakes directly in banks to try to restore confidence to the global financial system.
That move would resemble a British plan to recapitalise its own battered banks by offering up to £50 billion (S$127 billion) to shore up their capital and another £250 billion guarantee to refinance their debts.
While there was no shortage of activity across the globe, the over-riding feeling, especially after the half-hearted stock market rallies, was that the relief would be only temporary.
In the money markets, simultaneous rates cuts failed to inspire banks to restart lending, even though their funding costs had become cheaper.
Instead of easing, the three-month US dollar London Interbank Offered Rate (Libor) - the rate at which banks lend to each other - rose 0.2 percentage point to 4.52 per cent.
Tiny Iceland’s slip down the road to bankruptcy raised more concerns. Yesterday, it nationalised its largest bank and suspended trading of its shares.
There were also fallouts in other markets from fears of a global recession. Crude oil prices skidded US$1.11 to a eight-month low of US$88.95 a barrel.
And South-east Asia is beginning to feel the credit crisis strains, after staying immune since last year.
Indonesia’s stock market was closed for a second day, after shares plunged by over 20 per cent since Monday.
And in Singapore, the fear is that cash-strapped China firms may start ‘falling like flies’, if the credit crunch squeezes their working capital. This followed the collapse of listed steel-coil maker Ferrochina after it failed to repay 706 million yuan (S$152 million) in loans and stopped factory operations in China.
‘At best, any rally will come in bits and pieces,’ said AmFrasers Securities’ Najeeb Jarhom, surveying the wreckage of the local market in the past two weeks.
Source : Straits Times - 10 Oct 2008
Singapore Property - Buy, Sell, Rent, Invest
Mindy Yong
(+65)91002985
mindy@mindyyong.com ( email me )
Kovan Melody @ Kovan Road For Sale »« Blossoms @ 12 Woodleigh Close For Sale
