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A rough ride for Asia

The story

Fasten your seatbelts, Asia - the worst is yet to come. Investors battened down the hatches as regional markets continued their freefall after the UK's $87.6 billion bank bailout package underscored the divided response in Europe to the global financial crisis. Asian investors remained jittery after Wall Street tanked and the International Monetary Fund predicted that global banks might need $675 billion in capital to stay afloat. The Tokyo Stock Exchange recorded its steepest single-day decline since 1987 and Hong Kong its sharpest one-day plunge since 1973. The Indonesian bourse, meanwhile, halted trading for the first time in eight years after the benchmark index plunged more than 20 percent. Monetary authorities in Taiwan, South Korea and Hong Kong followed central banks around the world in cutting short-term interest rates to boost liquidity, while the Bank of Japan injected $20.1 billion to encourage inter-bank lending.

What's being said

This is frightening because "it is in Europe that the crisis has really deepened," says Martin Khor in The Star (Malaysia). "No one can see the light at the end of the tunnel," says the Chinese-language Investors Daily. That "sucking" noise you hear is the "sound of" risk-averse capital flowing out of Asia, says the Financial Times' Lex column, and "further weakness is on the cards." "There is reason to think Asia can stand its ground," says Bloomberg's William Pesek, but the region could also "be dragged down" in the coming months.

It "would be the height of hubris" for Asia to "smirk at the present alarm in Europe and America," says The New Straits Times (Malaysia). For Beijing, any sense of schadenfreude should be overshadowed by the need to "keep financing the healthy part of the US economy," because the Chinese economy benefits from US demand, agrees China Daily's You Nuo. "An economically crippled United States is good for almost no one," notes Philip Bowring in the International Herald Tribune.

Chinese policymakers are "taking copious notes on how not to run a financial system," comments Bill Powell in Time. Chinese "growth is slowing fast." But the "timing" of Beijing's decision to introduce short-selling and margin trading is "a sign of relative confidence." In Singapore, the pain will soon "hit home," argues The Business Times.

What's next

Analysts said the positive impact of coordinated interest rate cuts will likely last only for a short time. China also cut interest rates, although not with the same liquidity-boosting aims as the rest of the world. With the global slowdown deepening, Beijing will likely introduce a series of measures to soften the blow to the Chinese economy. Seoul, meanwhile, has been stepping up calls for the creation of a regional monetary crisis fund. (p. 24) As finance ministers from the Group of Seven prepared to meet in Washington late last week, Asian stock markets seemed to stabilize slightly. But with US Treasury Secretary Henry Paulson predicting the failure of more US banks in the coming months, Asian investors are bracing for more volatility.

 

 

 

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