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Asian shares battered as US$ dives against major currencies
Goh Eng Yeow Fri, Mar 14, 2008 The Straits Times
ASIAN bourses suffered a fresh round of savage sell-offs yesterday, as the ailing greenback slumped to a 12-year low against the yen and record lows against the euro and Singapore dollar. This sparked widespread fears that distressed hedge funds would be forced to redeem their huge yen loans used to make big bets in high-yielding emerging market equities. Traders saw the demise of a stricken mortgage-bond fund owned by Carlyle Group, one of the world's biggest buyout firms, as an early warning that other hedge funds with high debt levels might be on the brink of disaster.

They were unnerved by the ease with which the greenback slipped below the psychologically important support level of 100 yen - to 99.9 yen. This is its lowest level since September 1995 and comes ahead of a likely further cut in interest rates by the Federal Reserve next week. This aroused fears of a further unwinding of the carry trade, as hedge funds dumped stocks to repay yen loans to stem their losses.

Big regional losers included stocks with a wide following among hedge funds, and financial counters that had led Wednesday's rally.

Given the preponderance of these stocks in key market indexes, it is small wonder that regional bourses should suffer such heavy drops, as the yen strengthened against the US dollar.

For most Asian investors, the epicentre of the latest tremors was Hong Kong, where the Hang Seng Index plunged a stunning 1,121 points, or 4.8 per cent, weakened by a sliding greenback and rising Chinese inflation.

This caused other bourses such as Singapore's to come under massive selling in the afternoon. The Straits Times Index sank 112.39 points, or 3.9 per cent, to 2,805.55. This was its largest one-day drop in two months and its lowest close in almost 15 months.

Traders sensed panic spreading, as indiscriminate selling rocked blue chips such as Singapore Exchange, which tumbled 73 cents to $6.67, and Cosco Corp, which lost 25 cents to hit a 10- month low of $3.04.

Widely followed bank stocks also wilted. United Overseas Bank plunged 70 cents to $17.14 and DBS Group Holdings fell 44 cents to $16.90.

But unlike in previous selldowns, there were scary tales of retail investors getting caught by the whiplash this time. 'Even as hedge funds were unwinding their positions last week, retail investors were loading up on stocks like Cosco because they believed there would be a rebound since prices had fallen so much,' said brokerage remisier Thomas Lee.

Even the modest volume of 1.55 billion shares worth $1.91 billion offered little solace. It was taken as a sure sign that buyers were staying aloof.

All FTSE ST sectoral indexes weakened. For investors in China plays, it was another grim day. The FTSE ST China Index closed 5.6 per cent down at 420.39, as Shanghai fell 2.4 per cent.

Except for one day of gains on Tuesday, the FTSE ST China Index had an uninterrupted stretch of three weeks of losses.

Big losers included China Hongxing, which fell five cents to 47 cents, China XLX, which lost 10 cents to 63.5 cents, and Sino- Environment, which was down 7.5 cents at 78.5 cents.

engyeow@sph.com.sg