Asia-Pacific stockmarket dives in sea of red

Risk sentiments took a hit on contagion fears over European debt crisis

Asia-Pacific stockmarket blood bathed on Tuesday, July 12, 2011, with the MSCI Asia Pacific Index had fallen near 2%, heading for its steepest drop since June 16, as risk aversion selloff across the board on European debt contagion concerns. Meanwhile, decline in crude oil and base metals prices, European and US market overnight further undermined risk sentiments.



Every major market in Asia fell today spooked by worries that that the fiscal problems facing troubled EU members such as Greece, Portugal and Ireland may be spreading to larger economies in the monetary union, including Italy and Spain.

There are fears that the euro-zone debt crisis is spreading to Italy, the euro zone's third largest economy, with a fiscal debt to GDP ratio of around 118%. Italy has the second-highest level of sovereign debt relative to GDP in the euro zone after Greece. After Greece, bond yields rose sharply in Italy and Spain signaling the risk in holding debt bonds in these countries.

Top officials from the European Commission and the European Central Bank held a coordination meeting Monday to discuss a new aid program for Greece and recent developments in the euro area. Reports from the finance ministers meeting indicated the possibility that Greece may default; with the ministers indicating that they may look to private creditors to contribute to a new aid package for the country as the French-led debt restructure plan may collapse.

The new head of International Monetary Fund, Mrs. Lagarde's observations on Monday have further exacerbated the appetite for riskier equities. The IMF head said that Greece's efforts to close its budget gap have gone a long way but are “not sufficient”.

Euro-zone anxieties widened beyond Greece yesterday as panic over Italy's government debts and its banks after a jump in the cost of insuring Italian debt to a record. Italian regulators over the weekend introduced emergency short-selling disclosure rules to try to curb the recent volatility.

Spain was also in focus after the new leader of the Castilla La Mancha region said the area's government has a budget deficit more than twice as large as previously thought.

Moving to US debt, the Congressional leaders are still debating how to solve the debt impasse prior to August 2. It seems that no one can agree on the split between taxation and entitlements.

Back to equity market, the Tokyo shares ended steep lower, with the benchmark Nikkei Stock Average shrank by 1.43% at 9,925.92 while broader Topix index slumped 1.49% to 857.19 from prior day, as weak global cues and hardening yen against the euro and the dollar caused heavy selling pressure across the board. Banking and mining were the biggest loser of today's trade and was closely followed by services, nonferrous metals, and trading companies.

Yen strengthened against the euro and the US dollar as safe heaven flow on fears that the eurozone's debt crisis is spreading. The Japanese yen presently at 79.78 as compared 80.74 prior day. Meanwhile, it was at 111.26 against euro from 112.73 late yesterday.

The Policy Board of the Bank of Japan decided, by a unanimous vote, to keep its ultra-easy monetary policy unchanged. The BOJ board voted unanimously at the end of a two-day meeting to keep its uncollateralized overnight call loan rate target unchanged in a range of 0.0%-0.1%.

The BOJ said domestic economy is expected to return to a moderate recovery path from the second half of fiscal 2011, backed by an increase in exports reflecting the improvement in overseas economic conditions and by a rise in demand for restoring capital stock.

In Australia, equity market witnessed selloff pressure throughout the day, with the benchmark All Ordinaries index sank 1.79% at 4,563.50, while S&P/ASX200 shrank 1.9% at 4,495.40. Almost all sectoral indices ended lower with the exception of the coal producers.

Coal miners rose on hopes for more M&A activities on the industry after a $4.7 billion bid for Macarthur Coal. Macarthur Coal sparkled 36.6% to A$15.14 after US mining giant Peabody Energy made a A$4.7 billion takeover bid for the company in tandem with the world's largest steel maker, ArcelorMittal.

The Aussie dollar softened against the major currencies on Tuesday as increasing European debts contagion fear dented appetite for commodity-linked unit. The AUD was trading at 1.0596 greenback, down from 1.070 late yesterday.

The NAB Business Survey was released and showed that confidence levels in Australian businesses remains weak after a fall from +5.7 to +0.2. A reading above 0 indicates optimism.

In New Zealand, the NZX 50 Index edged down 3.759 points, or 0.11 per cent, to 3,430.376, on tracking a sharp plunge in most of the regional peers.

The kiwi fell further against the US dollar - still dropping sharply from its 30-year high around US83.80c on Friday night to US81.95c today, from US83.43c yesterday.

In Mainland China market, the benchmark Shanghai Composite index stumbled 1.72% at 2,754.58, as investors dumped riskier positions on tracking weak regional markets coupled with intensifying fears of more tightening steps from central bank after the China's inflation growth hit a three-year high of 6.4% in June.

Chinese Premier Wen Jiabao said on Monday that China would uphold and maintain the current direction of macroeconomic policy, reviving concerns over high inflation and further policy tightening.

Banking players were undermined amid speculations that their profitability will be hurt under the country's vast government debts. Energy companies retreated after crude oil futures fell heavily overnight in response of weak demand outlook from global economy. Materials and resources stocks tumbled on tracking pullback in base metals on the London Metal Exchange on Monday.

The People's Bank of China said today that country's new bank lending rebounded to 633.9 billion yuan in June from May's 551.6 billion yuan. On y-oy, the June figure was 20.7 billion yuan more. By the end of June, the broad money supply (M2), which covers cash in circulation and all deposits, rose 15.9% year-on-year to 78.08 trillion yuan.

China's foreign exchange reserves rose 30.3% year-on-year to hit $3.1975 trillion in June, the People's Bank of China said on Tuesday. Funds outstanding for foreign exchange in financial institutions increased 277.33 billion yuan ($42.83 billion) over the May to June period to hit 24.67 trillion yuan.

The Chinese yuan declined significantly against the U.S. dollar as increasing demand from exporters after weaker parity fixing by the central bank. Meanwhile stronger US dollar in offshore market also supported CNY weakness. The People's Bank of China set the Yuan's central parity rate at 6.4748 per US dollar, 39 basis points weaker from yesterday's parity of 6.4709. The USD/CNY was trading at 6.4725 as compared 6.4671 late yesterday.

In Hong Kong, the benchmark Hang Seng index crashed 3.06% on escalating concerns over the financial stability of Euro nations. Entire stocks submerged into the sea of red, with realty, materials, industrial goods, and energy counters led the fall.

In India, the BSE barometer SENSEX dived 1.62% at 18,417 late afternoon, hitting three-week low, after the factory-production growth slowed and as Infosys sales forecast missed market estimates. Concerns about the sovereign debt crisis in Europe also triggered risk shattering selloff.

Industrial production slowed down to 5.6%in May on slowing growth in manufacturing goods.

Among other Asian bourses, the key benchmark indices in Indonesia, Singapore, South Korea and Taiwan were down by between 1.43% to 3.06%.