Hong Kong's stock market dropped 12.7% Monday and Tokyo shares fell 6.4% to their lowest level in 26 years as fearful investors pulled out of the region's equity and currency markets.Hong Kong's Hang Seng Index traded sharply lower Monday.
The drops led a region-wide pullback that spilled over to European markets in intraday trading there. Investors were watching U.S. markets to see whether the pullback would continue as investors shunned risk and moved into cash or the safest of investments.
"It is difficult to see what could change the strongly risk-adverse mood in the market this week," said Sebastien Barbe, senior economist at Calyon. "A lot of uncertainty remains." The Dow Jones Europe Stoxx 600 index was down 4.9% in intraday trading.
In Japan, investors reacted with disappointment to government efforts to bolster the economy. Japan's finance minister verbally intervened in the market by suggesting the government is willing to counter the strengthening yen. Japan's Nikkei 225 Stock Average, which had fallen briefly below its lowest level since the bursting of Japan's asset bubble in the late 1980s, ended down 6.4% at 7162.90 -- a 26-year low.
Hong Kong's benchmark index fell to its lowest level since May 2004, as investors fled shares of property companies, financial institutions and oil producers to avoid risk. Hong Kong's Hang Seng shed 12.7% to end at 11015.84, well below the key 11500 mark. After the market closed, Hong Kong Financial Secretary John Tsang said without elaborating that the government has prepared a "series of measures" following the volatility in local shares and is ready to implement them if needed.
The drops across Asia were broad. The Philippines benchmark index in Manila fell 12.3%, while Bangkok tumbled 10.5%. Shanghai fell 6.3% and Singapore lost 8.3%; Taiwan shed 4.7% and Mumbai lost 2.2%.
"Funds continue to offload their holdings due to redemption purposes and this is not going to end in the near term," said Louis Wong, research head at Phillip Securities in Hong Kong.
South Korea defied the trend, ending up 0.8%, after South Korea's central bank lowered its key interest rate by three-quarters of a point early Monday, its biggest one-day move ever.
Ten minutes before the end of stock trading, shares on the Korea Stock Exchange appeared likely to close lower, just as was happening on other stock markets around Asia.
But then, South Korea's National Pension Service stepped in to buy shares worth about 400 billion won, or about $277 million, according to a person at an investment house who asked not to be named. Another investment banker, who also asked not to be named, said the agency's purchase may have been around 540 billion won.
The agency's purchases apparently played a key role in lifting the broad-market Kospi index to a positive close, its first in a week, to 946.45, up 0.8%. Before the agency's jump into the market, the Kospi was trading down about 1.2%.
Though share prices seesawed through the day, the South Korean market held up better than others around in Asia as investors reacted positively to the Bank of Korea's decision to lower its main interest rate three-quarters of a point to 4.25%, its biggest rate move ever and second this month.
An investment official at the National Pension Service declined to discuss the agency's market activity. The agency is South Korea's largest institutional investor, managing around 228 trillion won. Last Thursday, the agency said it planned to change its mix of investments over the next year by lowering overseas equity holdings, raising local bond investments and holding local equity investments steady.
Efforts from Other Governments
Other government efforts were met with disappointment. Hong Kong injected another HK$7.75 billion into its markets to keep the Hong Kong dollar within its allowed range of the U.S. dollar.
Risk aversion hurt currencies against the Japanese yen, while official warnings on the pace of recent yen gains failed to put a lid on the currency; higher-yielding currencies were hit with the Australian dollar sinking under $0.61. Australia's central bank said it intervened late Friday and early Monday to defend it dollar. Traders said they couldn't estimate how much the bank had purchased, but many said low liquidity meant only modest amounts would have been needed to lift the currency.
The Bank of Korea's decision -- which lowered the rate to 4.25% from 5% -- was the second rate cut this month as it tries to engineer a gradual slowdown in the country's economy and shows how the global financial crisis is now reshaping Asian economies far removed from the original source of trouble in the U.S.
South Korean government officials are worried that small and midsize businesses, which rely heavily on bank loans, are being hurt by high interest rates and will be forced to cut jobs without access to bank finance.
In addition to the deepest cut on record to the main interest rate, the BOK also slashed its credit loan rate to commercial banks by three-quarters of a point to 2.5%. That special, low-interest rate is now sharply lower than the main rate. The new cuts underscore the sudden change of policy focus at the BOK caused by the unfolding world-wide financial crisis, which has tightened the availability of money. Only two months ago, the BOK had raised the key interest rate because of inflation fears.
In Japan, fears that the sharply rising yen would hurt the exporters on which the economy depends heavily spurred Finance Minister Shoichi Nakagawa to declare there was "excessive volatility" in the currency market and that the government was watching the market "with great interest." The finance ministry also unveiled a joint statement from the Group of Seven industrial countries, saying that the nations are concerned about the excessive volatility in the yen's rate, adding that the group will "monitor markets closely and cooperate as appropriate."
After falling below ¥91 on Friday, the dollar was trading around ¥92.63 in Tokyo.
Elsewhere, Australia's S&P/ASX 200 index fell 1.6% to 3809.2, with financials as well as resource stocks trading lower on worries about the global economy. New Zealand markets were closed for a holiday.
In Seoul, shares of Samsung Electronics gained 3.1%, overcoming early losses. Among banks, Shinhan Financial Group rose 5.4% and Hana Financial Holdings jumped 14.6%. Technology firms and carmakers rebounded after their recent sharp losses. Samsung Electronics climbed 7.5% and Hyundai Motor jumped 10.5%.
December crude-oil futures fell as much as $1.40 to $66.44 a barrel in electronic trading, after sliding $3.69 to end at $64.15 a barrel Friday on the New York Mercantile Exchange, even after the Organization of the Petroleum Exporting Countries said it will slash its oil production quota of 28.8 million barrels a day by 1.5 million barrels from November 1.
