Asia must prepare for dollar collapse, says bank

'Asia must prepare for dollar collapse'

East Asian economies need to prepare for a possible collapse of the US dollar, the Asian Development Bank says.

ADB: Possibility of a dollar collapse small but fallout huge

The warning comes as the US trade deficit reaches a record high and global interest rates continue to rise.

Masahiro Kawai, the ADB's head of regional economic integration, said on Tuesday: "Any shock hitting the US economy or the global market may change investors' perceptions given the existing global current account imbalance.

"Our suggestion to Asian countries is: Don't take this continuous financing of the US current account deficit as given. If something happens then East Asian economies have to be prepared."

He said because of the highly interdependent nature of East Asian economies, if countries worked together to allow their currencies to collectively appreciate against a tumbling dollar then the cost of adjustment would be spread.

"The possibility of a US dollar collapse or sharp decline may be small at this point but it would generate very significant turmoil so East Asian economies ... ought to be ready for that."

The Manila-based ADB is working on several indices of Asian currencies that could be helpful to monitor exchange rate movements in the case of a sharp dollar decline, although its main intention is to help develop regional bond markets.

Political sensitivities

However, the ADB is still trying to decide which currencies to include in this Asian Currency Unit (ACU) amid political sensitivities about the inclusion of the Taiwan dollar given China's claim over the island.

The ADB had apparently been aiming to launch the ACU - a weighted basket of Asian currencies - before the bank's annual meeting in May, but Kawai said this would not be possible.

He said there was no specific launch date yet but hopefully it would be unveiled "in the next few months".

But Kawai played down suggestions that the ACU could foreshadow a single Asian currency like the European Currency Unit (ECU), which existed for two decades before the creation of the euro in 1999.

He said: "The ECU had an official status but the ACU has no such official status. We are not in the position to decide whether this should become a real currency or not."

Asian, European stocks plunge

By HANS GREIMEL, Associated Press Writer 1 hour, 1 minute ago

Asian stocks plunged Wednesday and European shares opened sharply lower after Wall Street chalked its second-biggest point drop in four years and rattled already nervous markets worldwide.

The tumble came just as international markets were recovering in recent days from sharp declines in early March amid concerns about overvalued stock prices and slower U.S. economic growth.

But those worries resurfaced as troubles at U.S. sub-prime lenders and lackluster retail sales pushed the Dow Jones industrials down nearly 2 percent Tuesday, sparking selloffs across Asia.

Stocks in Japan, Hong Kong, Malaysia, India and Australia all fell more than 2 percent, while shares in Singapore and the Philippines tumbled at least 3 percent.

In Europe, London's FTSE 100 dropped 1.7 percent shortly after the open, while Germany's DAX lost 1.8 percent. France's CAC 40 was also 1.7 percent lower.

On the Tokyo Stock Exchange, Asia's biggest bourse, the benchmark Nikkei 225 index sank 501.95 points, or 2.92 percent, to finish at 16,676.89 points. Foreign investors who bought up stocks during the recent rally led the selling, traders said.

Hong Kong's Hang Seng index fell 2.6 percent, Indian stocks dropped 3.1 percent, while Philippine stocks plunged 3.4 percent.

Overnight, the Dow fell 242.66, or 1.97 percent, to 12,075.96 amid concerns about problems at U.S. sub-prime lenders, who provide mortgages to people with poor credit. The U.S. Commerce Department also said sales at retailers rose a less-than-expected 0.1 percent in February, suggesting consumer spending might be waning.

"The U.S. sub-prime concern has cast a great shadow on Asia. The worry is that it could spill over and cause the U.S. economy to slow down, and this will cause a domino effect on the world economy," said Lee Cheng Hooi, technical analysis manager at EON Capital in Kuala Lumpur. "There could be more bloodbath to come."

Still, other analysts maintained that Asia's economic fundamentals remain strong and that the recent round of declines in stock prices were more likely a correction to cool markets that had risen too far too fast over recent months.

"The sell-off is in sympathy with the sharp sell-off we saw overnight on Wall Street, and it highlights the continued nervousness out there," said David Cohen, chief of Asian economic forecasting at Action Economics in Singapore.

"In perspective you could still say that this is a correction after the strong rally that was experienced for the previous several months around the world," he said.

While the U.S. retail sales data and mortgage news that prompted the sell-off on Wall Street "are a little concerning," fundamentals such as strong U.S. jobs data released Friday were still supportive of global equities.

"The world economy seems to be remaining on an upward trajectory," Cohen said.

The slump reversed a modest recovery in global markets from even bigger losses that started late last month with a sharp sell-off in Chinese stocks Feb. 27, which contributed to a 416-point drop in the Dow later that day.

The Shanghai Composite index fell 2 percent to 2,906.33 Wednesday. After gaining for six straight sessions the market was primed for a retreat, analysts said.

"This is the market's own adjustment after gaining for six days," said Zhu Haibin, an analyst at Everbright Securities in Shanghai.

In India, jittery investors sold off almost every blue chip stock, dragging the 30-share Sensitive Index, or Sensex, the benchmark index of the Bombay Stock Exchange, down more than 3 percent.

Indian shares have seen wild swings each time the global markets have turned weak. The Sensex fell 43 percent in May-June last year — only to bounce back to hit record highs. The Sensex reached an all-time high of 14,643 on Feb. 7, before losing about 2,000 points, or 14 percent, in the latest round of global declines.

Elsewhere Wednesday, Sydney's S&P/ASX 200 fell 2.1 percent, Singapore's Straits Times benchmark sank 3.35 percent, and South Korea's Kospi closed 2.0 percent lower.

____

Associated Press Writers Gillian Wong in Singapore, Eileen Ng in Kuala Lumpur and Toby Anderson in London contributed to this report.

Markets across Asia plunge

• Shanghai What-If: How a Shock Can Become a Shock Wave at The New York Times (reg. req'd), Mar 04
• Stocks plunge across Asia; Tokyo & Shanghai markets drop more than 3%
• Paul Krugman: The Big Meltdown
• A Slowdown is Inevitable - the Question is When
• Retrospeculation - Financial Bubbles

---
By YURI KAGEYAMA, AP Business Writer1 hour, 9 minutes ago

Markets in Asia and Europe fell again Monday, extending their slide into a second week as investors worried about a possible global slowdown dumped stocks that had surged in recent weeks.

Also sparking jitters was the yen's jump to a three-month high against the dollar as investors reversed so-called yen-carry trades. A decline in this trading practice, which involves borrowing money at Japan's ultra-low interest rates to invest in higher-yielding assets elsewhere, could hurt global liquidity.

In Tokyo, the Nikkei 225 index fell for a fifth day, tumbling 575.68 points, or 3.34 percent, to 16,642.25 points, dragged down by major exporters such as Canon Inc., Sony Corp (NYSE:SNE - news). and Toyota Motor Corp., whose earnings are eroded by a stronger yen. Since reaching a nearly seven-year high last Monday, the Nikkei index has slid 8.64 percent.

Markets in Hong Kong, Australia, the Philippines, Malaysia, India and South Korea all fell sharply Monday, continuing their declines from last week, when a 9 percent plunge in Chinese stocks on Tuesday triggered cascading selloffs on Wall Street and other global markets.

European markets also opened lower Monday, with Britain's benchmark FTSE 100 down 1.5 percent in early trading, France's CAC 40 sliding 1.8 percent and Germany's DAX sinking 2.1 percent.

"I don't know where the domino effect will stop," said Jose Vistan, research director at AB Capital Securities in Manila, Philippines, where the benchmark index sank 4.5 percent. "Emotions are the ones driving share prices right now."

"Everything takes a back seat relative to the sell-off that we are seeing. It's emotions," Vistan said. "You throw away technicals and fundamentals out the window. Emotions are the ones driving share prices right now."

Hong Kong's Hang Seng index tumbled 4 percent to its lowest since mid-December. Australia's stock market — which had hit records last month — fell for a fifth day, sinking 2.3 percent. South Korea's benchmark index dropped 2.7 percent and Indian stocks fell 4.2 percent.

Investors still seemed risk-averse after the previous week's turmoil.

"When there's such a big market move in such a short period of time, there's that element of surprise and confusion," said Teruhisa Ishikawa, section chief for investors information at Mizuho Investors Securities Co.

Funds and institutional investors tend to go on a selling binge to trim losses in reaction to such market moves, he said, adding that what was ahead was still unclear.

In China, the Shanghai Composite index fell a more modest 1.6 percent, but foreign-currency denominated "B shares" tumbled after officials denied rumors those stocks might be merged with the mainstream Chinese-currency "A shares."

Comments by China's central bank governor and premier suggesting authorities might tighten credit and raise interest rates and bank reserve requirements to combat rising inflation also cast a pall on markets already shaken by last week's volatility.

Signals so far suggest that China is determined to prevent a speculative bubble in share prices, which more than doubled last year and rose to a record high a week ago, investment house Morgan Stanley's chief economist Stephen Roach said in a report issued last week.

"A stock market correction could well be an unavoidable outgrowth of actions aimed at cooling off China's overheated investment sector," Roach said. "More administrative actions can be expected."

Indeed, many analysts see the market selloff as a healthy correction for markets that had risen too far, too fast. China's market had doubled in value last year, for example. In Malaysia, stocks had surged 17 percent since the start of the year before last week's sell-off.

There were also signs that the recent turmoil had caused some international investors to unwind yen-carry trades.

For years, investors have borrowed yen at Japan's near-zero interest rates to buy higher-yield assets elsewhere. But as the yen appreciates, the profits from these carry trades are eroded, prompting some investors to return yen loans, strengthening the Japanese currency.

The yen's appreciation accelerated as its gains triggered stop-loss buy orders early Monday, sending the dollar as low as 115.47 yen, its lowest level since Dec. 8.

"Yes, there was some unwinding of yen-carry trades among short-term players, but basically traders in Tokyo were selling the yen because foreign players wanted to buy it," said Tohru Sasaki, Chief FX Strategist with JP Morgan Chase Bank.

Still, while the Bank of Japan raised interest rates last month to 0.5 percent, they are still far lower than rates in the U.S. or Europe, making the yen-carry trade still an attractive strategy, analysts said.

____

Associated Press writers Carl Freire in Tokyo, Teresa Cerojano in Manila, Elaine Kurtenbach in Shanghai and Toby Anderson in London contributed to this report.

SE Asia stocks-Markets stage biggest falls since 1997 crisis

Related
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Reuters
Tue Feb 27, 2007 11:11 PM ET

 By Wee Sui Lee
 SINGAPORE, Feb 28 (Reuters) - Most Southeast Asian stocks
suffered their biggest one-day declines since Asia's 1997
financial meltdown, as investors sold off shares in a panic,
following the slump in global markets.
 Singapore's benchmark Straits Times Index <.STI> fell 5.63
percent by 0341 GMT and Malaysian shares tumbled 5.95 percent.
 The Philippine index lost 7.3 percent, while Indonesian
stocks fell 3.22 percent. Thai shares were down 1.64 percent.
 Dealers said the selloff in Southeast Asian markets
followed a near 9-percent plunge in Chinese stocks on Tuesday
 "China's the culprit. We have a lot of listed Chinese
companies, so we're dependent on China," said a dealer with a
regional brokerage in Singapore.
 Singapore-listed Chinese companies -- which make up more
than 100 of about 700 listed firms on the city-state's bourse
-- sank sharply on Wednesday.
 Shipbuilding and repair firm Cosco Corp. ,
controlled by China's top shipping firm, plunged 8.9 percent,
which reduced its market cap to below US$ 4 billion.
 Several other big-cap China plays also fell more than 7
percent, including food groups People's Food  and Pine
Agritech . More than 20 small- and midcap China plays
fell between 10 and 19 percent.
 Dealers said the Singapore market was also rattled by the
slump in U.S. stocks on Tuesday, with the Dow Jones industrial
average <.DJI> in its worst slide since the aftermath of the
Sept. 11 attacks.
 Losses in Southeast Asia's largest and most liquid bourse
were led by DBS Group , Singapore's biggest bank,
which fell 6.2 percent, and United Overseas Bank , the
country's second-largest bank, which also tumbled 6.2 percent.
 Index heavyweight Singapore Telecommunications ,
Singapore's largest listed company, was down 5.5 percent.
 Genting International  sank 11 percent after
Singapore said the Malaysian gambling firm's successful bid to
build a casino in the city-state would not automatically
qualify it for a casino licence. Sister company Star Cruises
 also slumped 14.5 percent.
 Analysts have long warned of an imminent correction in
Southeast Asian markets, many of which have recorded record or
multi-year highs in the year to date.
 "Singpore has been at an all-time high, and there's the law
of gravity -- investors are getting nervous and are locking in
profits," said Winson Fong, who manages $2 billion as chief
investment officer at SG Asset Management in Singapore.
 "For the short-term, stocks which have gone up strongly
will see sharp corrections; investors will look at underlying
fundamentals before going in," Fong said.
 But other analysts said the selldown in the Singapore
market would be temporary.
 "We anticipate the market will recover from this selloff
within the next 10-15 trading days. Leading the resumption of
the rally would be the blue-chips," said OCBC analyst Ritesh
Menon in a research note, who added that his mid-year technical
target for the index is at 3,350.
 In Kuala Lumpur, Malaysian power utility Tenaga Nasional
Bhd  led losses, sinking 5.7 percent. Malayan Banking
, the nation's biggest lender, fell 5.4 percent.
 In Jakarta, Indonesia's largest telecommunications firm PT
Telekomunikasi Indonesia  fell 3.3 percent. PT Bank
Mandiri Tbk  lost 7.4 percent.
 In Bangkok, PTT PCL , Thailand's biggest energy
firm, fell 1.9 percent. Advanced Info Service PCL ,
Thailand's top mobile phone firm, slipped 2 percent.
 In Manila, PLDT , the Philippines' largest telecoms
group, fell 8.2 percent, and Ayala Land , the country's
top property developer, lost 6.1 percent.
(Additonal reporting by Doreen Siow and Jamie Lee)

Global Markets Fall Again on Fears About U.S. Economy; Manufacturing Recession

Global Markets Fall Again on Fears About U.S. Economy

By KEITH BRADSHER and MARTIN FACKLER 16 minutes ago

Stock markets fell sharply across most of Asia again today and continued declining in Europe, as investors worried about the drop on Tuesday in American stock indices.

• Chinese Investors Shrug, and Shanghai Rallies 6:55 AM ET
• Slide Adds to Concerns About Economies | Leonhardt: Manufacturing Recession