Asian stock markets battered by US credit turmoil

SINGAPORE (Thomson Financial) – Stock markets across Asia tumbled Monday, dragged down by Wall Street’s sharp decline Friday as
investors continued to fret about the growing problems in the US credit markets.

The Singapore Straits Time Index led the decline, shedding 3.7 percent of its value in the morning session. Banks were among the worst hit as players dumped stocks in the sector amid worries over exposure to collateralized debt obligations, which are securities backed by bonds and loans and which could include US subprime mortgages.

Banks have been downplaying their exposure to the US credit crisis, but late last week, DBS Group Holdings, the biggest lender in Singapore, said it has exposure of about 850 million US dollars. It dismissed the sum as insignificant relative to its capital position and said it’s comfortable with its investment portfolio.

United Overseas Bank is reported to have exposure of less than 500 million Singapore dollars while Oversea China Bank has about 600 million dollars at risk.

Other stock indexes were also hit hard. In Hong Kong, the Hang Seng was last down 2.4 percent, Australia’s S&P;/ASX 200 fell 2.1 percent, South Korea’s benchmark, the KOSPI, was down 1.8 percent, Taiwan’s Taiex was off 1.6 percent and Thailand’s SET index slumped 2.8 percent.

In Japan, the Nikkei 225 index ended the morning session down 148.16 points or 0.9 percent at 16,831.70, well off a low of 16,675.39 hit early in the day. Traders said a weakening yen had helped the market trim its losses, raising interest in big exporters such as Toyota.

Elsewhere, the Kuala Lumpur composite index fell 2.7 percent, the Jakarta composite index slid 4.2 percent and Manila’s composite index ended down 2.8 percent to its lowest level in more than three months.

Wall Street plunged anew Friday, sending the Dow Jones Industrial Average down 281 points or 2 percent after comments from a major investment bank exacerbated the market’s fears of a widening credit crunch.

The drop came after two volatile weeks on Wall Street where investors have been spooked by growing numbers of bad home loans and rising risk aversion that it has made it harder to raise money to finance leveraged buy-outs.

This time, the catalyst for a sharp skid was Bear Stearns Cos Chief Financial Officer Sam Molinaro, who described the turmoil in the credit market as the worst he’d seen in 22 years.

Standard & Poor’s cut its outlook on Bear Stearns credit to negative due to the impact of bad loans on some of its investment funds. A weaker-than-expected jobs report for July also weighed on sentiment.

However, Citigroup said Monday that the recent selloff in Asian markets is overdone and that regional banks, insurance companies and non-bank financial institutions should be able to manage their exposure to the US crisis.

‘The impact of US subprime asset-quality problems and falling prices of structured products such as collateralized debt obligations (CDO), mortgage-backed securities (MBS) and asset-backed securities (ABS) on Asian financials should be manageable,’ Citigroup analyst Tracy Yu said in a note to clients.

Taiwan’s insurance companies and Singapore’s banks have the highest CDO exposure, she said.

‘We believe Hong Kong and Chinese banks and insurers have small exposure to CDO, MBS and ABS,’ Yu said.

Banks in Malaysia, alongside Indian and Indonesian banks are reported to have no or minimal exposure, the analyst said.

Malaysia’s largest lender Maybank owns credit-linked notes issued by financial institutions that have significant subprime exposure but the amount is fairly small at 60 million dollars, according to Yu.

Chinese markets bucked the negative trend in the region on Monday. The Shanghai Composite Index was last up 3.5 percent, while the Shanghai A Index gained 3.5 percent.

ciara.linnane@thomson.com

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