23 Oct 2008

World markets hit hard again

10:37 pm on 23 October 2008

Weak Japanese exports and poor corporate earnings provided more evidence of the economic damage wrought by the global financial crisis, knocking Asian shares to four-year lows on Thursday.

Markets ignored signs that the credit crunch may be easing and focused instead on the risk of a global recession, which could slash company profits, lead to rising layoffs and cut consumer spending.

Japan's Nikkei share average was down over 2% after earlier hitting a more than five-year low. The MSCI index of Asia-Pacific stocks outside Japan fell 5.4% to its lowest in four years.

Hong Kong share prices closed 3.6% lower, while shares in South Korean shares fell 7.48% to a three-year low.

Australian stocks closed lower for the second consecutive day, dragged down by big losses in the resources sector amid renewed fears of a global economic slowdown. The benchmark S&P/ASX200 was down 4.37%.

New Zealand's central bank became the latest to try to temper the impact of the credit crisis, slashing interest rates by a record one percentage point on Thursday and saying further rate cuts are in the pipeline.

The Reserve Bank cut its official cash rate to 6.5%, the lowest since January 2005, citing the global market turmoil and markedly slower economic growth and signalling that more cuts could be on the way despite inflation concerns.

The New Zealand benchmark index finished the day down 3.1%.

The carnage in Asia-Pacific markets followed the fall of US stocks to a five-year low, as weak corporate earnings reports and announcements of job cuts prompted fears of a global recession.

Recession worries

Many economists say the economic effects of the financial crisis set off by the US housing market collapse 15 months ago are only starting to show, even as money markets start to thaw as banks begin lending to each other again.

Supporting that view, Japanese exports grew only 1.5% in September from a year earlier, well short of forecasts, prompting worries that the world's second-biggest economy is heading into recession and renewing speculation of an interest rate cut by the Bank of Japan.

More worryingly, shipments to the United States fell for the 13th straight month and exports to the European Union recorded a fourth annual decline in five months.

The financial crisis and steps to address it are likely to be on the agenda of the Asia-Europe Meeting, a summit of leaders from more than 40 countries that starts in Beijing on Friday, though analysts expect little concrete action from it.

Several Asian countries have pushed for regional initiatives to address the current crisis, including Thailand's proposal that they nearly double to $US150 billion a scheme for issuing emergency credit lines to one another and earmark further $US200 billion to support the region's markets and economies.

Such initiatives are likely to be overshadowed, however, by a summit of the G20, which includes major industrial nations and big emerging economies like China, India and Brazil, on 15 November to discuss financial reforms.