Asian markets reel as global jitters worsen

Written by Markets Bureau | Mumbai | Updated: Mar 10 2009, 06:48am hrs
Growing concerns about the health of the global financial system, hedge funds coming under heavy redemption pressure, and the Japanese economy reporting its first deficit in the last 13 years sparked a major sell-off in Asian equity markets on Monday. The region-wide negative sentiment rubbed off on Indian markets as well.

Tokyos Nikkei 225 index was pummelled to a 26-year low of 7,086.03, losing 87.07 points, or 1.21%. The markets focus is on whether the Nikkei can hold above 7,000 after it index went as low as 7,028.49 on Monday. Hong Kongs Hang Seng plunged 4.84% to 11,344.58 points with the benchmark index dragged lower by a 24% plunge in HSBC as the global lender headed towards its deeply discounted rights issue this week. The Shanghai Composite registered a decline of 3.39% to close at 2,118.75 points.

Jittery European markets all opened in the negative zone with key benchmark indices such as Londons FTSE 100, Frankfurts Dax and the Paris CAC 40 trading 0.02-1.30% lower at 8.40 pm IST. The pan-European FTSEurofirst 300 index of top shares was down 2.3%. The broader STOXX 600 was also down 2.4%, hitting its lowest level since September 1996. New Yorks Dow Jones Industrial Average shed 0.50% in early trades.

The cumulative effects of this were reflected in the latest fund flow numbers, with collective outflows from EPFR Global-tracked equity funds reaching levels last seen in mid-October, said a report by EPFR Global, an international agency that tracks international fund flows.

Domestic equity indices fell in line with their Asian peers. The 30-share Sensex of the BSE ended the day down 165.42 points, or 1.99%, to end the day at 8,160.40 points. The broader S&P CNX Nifty of the NSE closed the day down 1.79%, or 47 points, at 2,573.15 points. Analysts and traders feel Indian equity markets will continue to remain under heavy selling pressure until some kind of positive news emerges from the global financial system to restore confidence among the investor community.

Jayesh Shroff, fund manager at SBI Mutual Fund, said, At this point of time, there is no positive news emerging from any part of the world for the market to take a cue from. And any incremental bad news will continue to result in heavy selling pressure in coming days. The rupees weakness also continued to dampen investor sentiment, as it would hit hard the profitability of companies with a high foreign exchange exposure, according to market experts.

The Vix at a lower level and range-bound despite the market already tanking suggests that participants anticipate the market to slide further. There is no confusion there and hence the Vix is not as volatile as it was earlier, said Sidharth Bhamre, a fund manager and derivative analyst with Angel Stock Broking. The Vix is the India Volatility Index, which measures market sentiment for the month ahead.

Meanwhile, Morgan Stanley, in its latest report on India, has predicted an entrenched slowdown for the economy ahead. The study states that banking sector stress would affect the pace of recovery. We believe that the vicious feedback loop of initial growth shock, rise in non-performing loans and risk aversion in the Indian banking sector has already been unveiled. As such we expect 2009 GDP growth at 4.3%.

With the global hedge fund industry continuing to face heavy redemption pressure from clients, foreign institutional investors continued their selling in domestic equity markets. According to provisional figures provided by the BSE, FIIs were net sellers to the tune of Rs 84.94 crore while domestic institutional investors were net buyers worth Rs 299.72 crore.

Reuters adds from London: MSCIs all-country world stock index was down 1.2%, bringing year-to-date losses to around 24%. The index, a benchmark for major investors, is only a few percentage points away from lows reached in 1995, before that decades Russian and Asian crises.

The recession is very dire. You have an incredible rise in risk premium so people expect the worst. Banking results are getting worse, said Giorgio Radaelli, chief strategist at wealth manager BSI in Switzerland. Investors remain particularly concerned about the banking sector, with uncertainty about the potential nationalisation of US banks weighing hard.