Falling prices, poor export figures and Citi's woes trigger big losses
By
Goh Eng Yeow
The decline in US consumer prices stoked fears that the US might be entering a prolonged period of economic stagnation. -- PHOTO: REUTERS
STOCK markets across Asia suffered a fresh round of crushing losses yesterday in the wake of unrelenting gloomy news from the world's two biggest economies, the United States and Japan.
Investors sold stocks frantically, especially banks, as the spectre of potentially crippling deflation emerged after US consumer prices fell 1 per cent last month - their largest recorded drop ever.
Also, major fears now centre on the financial health of the US' No. 2 bank Citigroup, which operates a vast global financial network.
Adding to the air of despondency, the US Federal Reserve said a US slowdown could last until at least the middle of next year. Also, US new home-building figures were the worst on record.
In Japan, exports slumped 7.7 per cent, their biggest drop in seven years.
The mood for Asia was set by a 5.1 per cent nose-dive in the Dow Jones Industrial Index on Wednesday to below 7,997.28 points - its lowest level since March 31, 2003. In early trading yesterday, the Dow was 167.66 points or 2.1 per cent lower at 7,829.62.
In response to Wall Street's nose-dive, major stock indexes across Asia yesterday fell precariously close to last month's meltdown levels.
In Singapore, the benchmark Straits Times Index tumbled 51.64 points, or 3.1 per cent, to 1,613.95 as it fell near the four-year low of 1,600.28 hit on Oct 24.
Elsewhere, the sell-off slashed 4.04 per cent off Hong Kong's Hang Seng Index, 6.7 per cent off Seoul's Kospi Index and 6.89 per cent off Tokyo's Nikkei-225 Index.
Europe was not spared either. At mid-day, London, Paris and Frankfurt had fallen by about 2 per cent each.
'There doesn't seem to be any bottom in sight. The bad news keeps getting worse,' said Singapore trader Peter Ong.
The decline in US consumer prices stoked fears that the US might be entering a prolonged period of economic stagnation. Deflation, or falling consumer prices, is regarded by economists as a death spiral as spending dries up and debt becomes more burdensome. Japan's economy was nearly suffocated by deflation for much of the past 18 years.
This environment is stifling central banks' efforts to simulate demand by cutting interest rates, Merrill Lynch analysts Michael Hartnett and Michael Penn noted in their latest fund manager survey.
Another key worry is the risk of more businesses going to the wall because of the credit squeeze caused by the severe problems stalking Citigroup whose share price plunged a record 23 per cent in New York on Wednesday and a further 11 per cent in early trade yesterday.
Fears that the big three US carmakers could fail to secure a US$25 billion (S$38 billion) financial bailout from the US government also unnerved investors as they fretted about the impact worldwide of a possible collapse of these giants.
Crude oil prices fell below US$53 a barrel, close to a two-year low, hurt by plummeting global stock markets and weakening demand in the growing downturn. Yesterday, oil prices fell further, going below US$50.
The latest spate of bad news also took its toll on the greenback which had been regaining lustre as a safe-haven currency, as it lost ground against the Japanese yen.
