Published October 25, 2008

Stocks plummet, more pain to come

By CONRAD TAN

	Email this article
	Print article
	Feedback

STOCKS across Asia and Europe yesterday suffered some of their worst falls in decades, as analysts warned of severe damage to businesses and the broader economy worldwide from the upheaval in financial markets.

GLOOMIER AND GLOOMIER South Korea's Kospi stock benchmark was by far the biggest loser in the region. It slumped 10.6% yesterday, ending the week 20.5% lower.

'There's a lot more pain to come,' said Manu Bhaskaran, head of global economic research at US consulting firm Centennial, in Singapore. 'Equities may rally for one or two weeks on expectations of further policy action, but my guess is it won't last.'

He was speaking at the Singapore Economic Policy Conference, organised by the Singapore Centre for Applied and Policy Economics. 'I think equity markets will not recover until the middle of next year,' he said.

He warned of a dangerous 'downward spiral' that could result from the failure of major companies outside the financial sector as the US and parts of Europe sink into recession.

Analysts in the US are increasingly worried about the health of giant US carmakers General Motors, Ford Motor and Chrysler, which have suffered from plunging sales amid a weakening economy.

If any of those firms - which together employ hundreds of thousands of workers - goes bust, that would trigger further chaos in financial markets as the companies' enormous pension fund liabilities are taken over by the government.

That would in turn raise questions about the ability of the US government to shoulder even more debt at a time when its federal budget is already severely stretched from bailing out banks and the broader financial sector, said Mr Bhaskaran. 'The crisis would take on a whole new dimension.'

'I think some of the exaggerated downward reactions we see in the markets today is anticipating further bankruptcies of iconic companies.'

As he was speaking, the Straits Times Index suffered its biggest one-day fall in nearly two decades, ending one of the worst weeks in recent memory.

The stock benchmark finished 145.39 points or 8.3 per cent down at 1,600.28 - its lowest closing level since Aug 23, 2003. Over the week, the index lost a staggering 14.8 per cent.

Yesterday's plunge was the biggest percentage drop in the stock benchmark since Oct 16, 1989.

Across Asia, a similar story unfolded in all markets.

Shares in major export firms such as carmakers and shipping groups plunged as stock analysts continued to slash their earnings forecasts for companies. Property companies, banks and airlines - all of which are expected to suffer badly from a severe economic downturn - were also savaged.

The US, UK, Japan, Germany, France and Italy - which together made up more than 40 per cent of the world's economic output last year - all appear to be sliding into recession at the same time, hurting economies across Asia, including Singapore, that rely heavily on exports to these countries, analysts say.

'The economic landscape is not very pretty and that's what investors are shocked to see - the damage that's already been done,' said Sim Moh Siong, director of Asia-Pacific economic and market analysis at Citigroup, who was also at the conference. 'We're still a long way from recovery.'

South Korea's Kospi stock benchmark was by far the biggest loser in the region for the week. The index slumped 10.6 per cent yesterday, ending the week 20.5 per cent lower. That exceeds the 20 per cent fall that traders use to identify a bear market - in the space of just one week.

News yesterday that the country's economic growth slowed sharply in the third quarter also confirmed fears that the financial crisis is hurting major Asian economies badly. Its currency, the Korean won, has lost a third of its value against the US dollar since the start of the year.

In Japan, the Nikkei-225 index fell 9.6 per cent yesterday to its lowest closing level since November 1982, while Hong Kong's Hang Seng Index slid 8.3 per cent to end at its lowest since August 2004. India's Sensex index suffered the biggest loss in the region yesterday, finishing 11 per cent down at its lowest since November 2005.

'It's nervousness about the developing global downturn driven by slowdowns in the US and Europe, two of the biggest customers to many Asian exporters,' David Cohen, director of Asian economic forecasting at Action Economics in Singapore, told BT.

So grim was the outlook for global demand that crude oil prices fell by more than 7 per cent to just US$63 a barrel, despite an emergency cut in oil production declared by Opec, the cartel of the world's biggest oil-producing countries, in a desperate bid to prop up collapsing oil prices.