Asia's financial markets are bracing for a prolonged period of instability even after the Federal Reserve's unprecedented action Friday, as the unfolding global credit crisis -- which had slowly been building in the region -- savaged stock, currency and bond markets late last week.
Much of the carnage in Asia stemmed from the foreign-exchange markets, as the yen's appreciation -- it strengthened almost 4% against the dollar last week because of the unwinding of a popular investment strategy known as the carry trade -- threatened to hurt Japan's huge export industry. That caused one widely followed Japanese stock index to post its worst one-day point drop in seven years Friday. Stock markets elsewhere also tumbled.
Meantime, trading in the New Zealand dollar -- another popular carry-trade currency -- came practically to a standstill because of a lack of buyers. Australia's central bank intervened in the currency markets for the first time in six years, buying Australian dollars as that currency weakened sharply against the Japanese yen.
In Hong Kong, dozens of stock traders turned to a feng shui master, So Man-Fung, to seek predictions about where the market would go next. The master's advice, echoed by many more conventional strategists: The worst may be over but difficult times lie ahead, even if a full-blown financial crisis in Asia is averted.
Much of the damage in Asia Friday came before the Fed's cutting of the discount rate, charged on direct Fed loans to banks, to 5.75% from 6.25%.
As many expected, several Asian markets opened higher Monday morning. Among major stock indexes, Australia's S&P/ASX 200 was up 3%, Japan's Nikkei 225 gained 3.4% and South Korea's Kospi Composite was up 4.6%.
Further increases in U.S. stocks and a pickup in bond trading also could provide additional support for Asia's markets. Banks across Asia continue to lend, largely unaffected by U.S. subprime-mortgage exposure that was the original cause of the global distress. Some observers note that Asia's biggest countries, including China and India, are humming along, underpinned by strong economic foundations.
Still, many analysts expect more market instability because of the uncertainty over how much more bad news is to come and because international investors, who had piled into Asia's markets, are retreating en masse.
Asia mostly hasn't had the bank bailouts and hedge-fund collapses of U.S. and Europe. Still, there are increasing fears that the widening problems elsewhere could dent the region's recent phenomenal economic growth.
Shares in big Japanese exporters including Toyota Motor Corp. and Canon Inc. took big hits Friday on fears the strengthening yen would hurt their financialperformance. Contemplated share offerings, both initial public offerings and straightforward share issuances, are being put back on the shelf. "Deals are on hold in Asia, particularly in Japan," said Sutha Kandiah, joint head of equity capital markets at UBS Securities in Tokyo. "We're advising corporate clients
that are preparing issuance for the third or fourth quarter to stay the course."
There now are rising expectations that some central banks, including the Bank of Japan, will shy away from anticipated interest-rate increases until they have a clearer picture of how the financial-market ructions impact the economy. The Bank of Japan meets this week.
One person close to the Bank of Japan said that since Aug. 9, central bank officials had been in "even closer contact" than usual with their counterparts at the Federal Reserve and the European Central Bank but declined to say whether there were specific discussions in advance of the Fed's action Friday.
Casualties among Asian bond issuers include Malaysian shipping firm MISC Bhd. and South Korean auto maker Kia Motors Corp. Both had appointed lead managers to handle bond sales and had met with potential investors in late June to tout their U.S. dollar bonds, which appeal to international investors.
MISC Chairman Hassan Marican said Friday after the company's annual meeting that the company now would look at various funding options after putting its $750 million 10-year bond on the backburner in late June.
Kia Motors -- an affiliate of Hyundai Motor Co., the world's sixth-largest car maker by sales -- will sell 200 billion won of domestic bonds this week after canceling its plans to sell $300 million to $500 million of five-year, dollar-denominated bonds in Europe and Asia because of the financial-market instability, a company official said Friday.
The Fed's move is "a boost to confidence, and this will be reflected in a better-performing market, but there is still a lot of headline risk," said Scott Wilson, head of credit research at Royal Bank of Scotland in Singapore. "I don't think we are going to see an immediate return to the precrisis situation. The market has become very dysfunctional."
Much of the carnage in Asia stemmed from the foreign-exchange markets, as the yen's appreciation -- it strengthened almost 4% against the dollar last week because of the unwinding of a popular investment strategy known as the carry trade -- threatened to hurt Japan's huge export industry. That caused one widely followed Japanese stock index to post its worst one-day point drop in seven years Friday. Stock markets elsewhere also tumbled.
Meantime, trading in the New Zealand dollar -- another popular carry-trade currency -- came practically to a standstill because of a lack of buyers. Australia's central bank intervened in the currency markets for the first time in six years, buying Australian dollars as that currency weakened sharply against the Japanese yen.
In Hong Kong, dozens of stock traders turned to a feng shui master, So Man-Fung, to seek predictions about where the market would go next. The master's advice, echoed by many more conventional strategists: The worst may be over but difficult times lie ahead, even if a full-blown financial crisis in Asia is averted.
Much of the damage in Asia Friday came before the Fed's cutting of the discount rate, charged on direct Fed loans to banks, to 5.75% from 6.25%.
As many expected, several Asian markets opened higher Monday morning. Among major stock indexes, Australia's S&P/ASX 200 was up 3%, Japan's Nikkei 225 gained 3.4% and South Korea's Kospi Composite was up 4.6%.
Further increases in U.S. stocks and a pickup in bond trading also could provide additional support for Asia's markets. Banks across Asia continue to lend, largely unaffected by U.S. subprime-mortgage exposure that was the original cause of the global distress. Some observers note that Asia's biggest countries, including China and India, are humming along, underpinned by strong economic foundations.
Still, many analysts expect more market instability because of the uncertainty over how much more bad news is to come and because international investors, who had piled into Asia's markets, are retreating en masse.
Asia mostly hasn't had the bank bailouts and hedge-fund collapses of U.S. and Europe. Still, there are increasing fears that the widening problems elsewhere could dent the region's recent phenomenal economic growth.
Shares in big Japanese exporters including Toyota Motor Corp. and Canon Inc. took big hits Friday on fears the strengthening yen would hurt their financialperformance. Contemplated share offerings, both initial public offerings and straightforward share issuances, are being put back on the shelf. "Deals are on hold in Asia, particularly in Japan," said Sutha Kandiah, joint head of equity capital markets at UBS Securities in Tokyo. "We're advising corporate clients
that are preparing issuance for the third or fourth quarter to stay the course."
There now are rising expectations that some central banks, including the Bank of Japan, will shy away from anticipated interest-rate increases until they have a clearer picture of how the financial-market ructions impact the economy. The Bank of Japan meets this week.
One person close to the Bank of Japan said that since Aug. 9, central bank officials had been in "even closer contact" than usual with their counterparts at the Federal Reserve and the European Central Bank but declined to say whether there were specific discussions in advance of the Fed's action Friday.
Casualties among Asian bond issuers include Malaysian shipping firm MISC Bhd. and South Korean auto maker Kia Motors Corp. Both had appointed lead managers to handle bond sales and had met with potential investors in late June to tout their U.S. dollar bonds, which appeal to international investors.
MISC Chairman Hassan Marican said Friday after the company's annual meeting that the company now would look at various funding options after putting its $750 million 10-year bond on the backburner in late June.
Kia Motors -- an affiliate of Hyundai Motor Co., the world's sixth-largest car maker by sales -- will sell 200 billion won of domestic bonds this week after canceling its plans to sell $300 million to $500 million of five-year, dollar-denominated bonds in Europe and Asia because of the financial-market instability, a company official said Friday.
The Fed's move is "a boost to confidence, and this will be reflected in a better-performing market, but there is still a lot of headline risk," said Scott Wilson, head of credit research at Royal Bank of Scotland in Singapore. "I don't think we are going to see an immediate return to the precrisis situation. The market has become very dysfunctional."
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