Published October 17, 2008
A black mood seizes markets worldwide
Gloomy outlook for major economies sends equities into violent tailspin
By CONRAD TAN

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(SINGAPORE) Stocks in Asia went into free-fall yesterday as gloom replaced hope and more banks in Europe turned to governments for funding.

Nail-biting finish: Fears that major hedge funds could fail after being overwhelmed by huge losses in the past few weeks added to the strain in equity markets after US equities suffered a near meltdown on Wednesday
UBS, Switzerland's biggest bank, received nearly US$60 billion in support from the Swiss government, while its smaller rival Credit Suisse raised 10 billion francs (S$12.9 billion) from other investors including Qatar's sovereign wealth fund, avoiding a state bailout.
Both banks suffered massive losses in their investment banking divisions, which they blamed on the extreme turbulence in financial markets over the past few weeks.
UBS made further writedowns of US$4.4 billion in the third quarter, while Credit Suisse wrote down 2.4 billion francs.
Banks worldwide have suffered some US$650 billion in asset writedowns and credit losses since the start of last year, according to Bloomberg estimates.
The news compounded fears that the trillions of dollars committed so far to rescue financial institutions in the US and parts of Europe may not be enough to recapitalise the banking system, given the enormous losses that banks still face.
Analysts warn that banks worldwide could suffer further losses from their exposure to the vast credit-default swaps market, as well as losses from ordinary loans to businesses and consumers, as major economies in the US and Europe plunge into recession.
Japan's Nikkei-225 index was the biggest loser in the region yesterday, plummeting 11.4 per cent by the end of trading. The fall snapped a two-day rally in which the stock benchmark rose 15.4 per cent.
On Wednesday, US equities suffered a near meltdown as fears of a severe economic downturn sent shares into a tailspin.
Stocks there were savaged after retail sales data signalled a slump in consumer spending, feeding fears that the consumer-driven US economy could be facing its worst recession in decades. In the UK, a jump in the unemployment rate suggested that the outlook for other major economies is also bleak.
Fears that major hedge funds could fail after being overwhelmed by huge losses in the past few weeks also added to the strain in equity markets.
Here, the Straits Times Index finished 108.19 points, or 5.25 per cent, lower at 1,951.20. Yesterday's decline extended the stock benchmark's two-day loss to 8.3 per cent, erasing almost all its gains earlier in the week.
Hong Kong's Hang Seng Index slumped 4.8 per cent, after sliding 8.8 per cent earlier. The benchmark has lost 9.5 per cent since Tuesday's close, though it is still up for the week.
All other major share indices in Asia also ended lower.
In Europe, equity benchmarks also fell sharply. The FTSE 100 index staged the biggest two-day decline since October 1987, sliding 218.2, or 5.4 percent, to close at 3,861.39.
One bright spot was the money markets. Interbank lending rates in most major economies in Asia and Europe fell for the fourth straight day, a reassuring sign that the trillions of dollars committed by governments worldwide to support the banking system is slowly restoring confidence among financial institutions. But indices tracking credit-default swap spreads - a measure of the perceived risk of debt defaults by big companies or governments - rose in Asia and Europe for a second day, after easing earlier in the week.
Nicholas Kwan, Asia regional head of research at Standard Chartered Bank in Hong Kong, warned that 'what we have experienced is far from the end'.
'Usually, the outbreak of a crisis is the most shocking time, but the most challenging time comes some time later, when damage to the economy bites deeper,' he said in a note.
The top priority for governments in the region should be to unblock money markets, reinforce confidence in their respective banking systems, he added.
Last night, the Singapore government said that it would guarantee the full amount of all Sing-dollar and foreign currency deposits of individuals and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore, following similar moves in Hong Kong and Europe.