Asian markets hit by recession fears

Asian stocks slumped today, led by a 7 per cent drop in South Korean shares, as the global economic slowdown and emerging market…

Asian stocks slumped today, led by a 7 per cent drop in South Korean shares, as the global economic slowdown and emerging market instability hurt an array of corporate outlooks, pushing up government bonds and the yen.


The financial crisis has spread far beyond the banking sector, with electronics maker Sony Corp and US online retailer Amazon.com Inc cutting their forecasts in the face of weakening consumer demand.

The stronger yen, which this week rose the most against the US dollar in a decade, has been particularly damaging to the competitiveness of Japanese exporters as it curbs their overseas profits when they are brought home and erodes the competitiveness of their products.

Fears about potential sovereign debt default in some developing economies has accelerated a move out of emerging market assets and increased an unwillingness among investors to take risks.

"Players are now focused on emerging markets as the credit crisis takes its toll on them," said Mitsuru Sahara, senior manager of foreign exchange sales for Bank of Tokyo-Mitsubishi UFJ in Tokyo. "Nobody is willing to take risks under the current circumstances, and risk aversion will only accelerate," he said.

The MSCI index of Asia-Pacific equities traded outside of Japan fell 4.1 per cent to a fresh 4-year low and was on track for its eighth weekly loss.

South Korean stocks have been especially hit hard this year with the benchmark KOSPI index poised for the biggest weekly decline since the 1997 Asian financial crisis. The index was down 7 per cent on the day, falling below the psychologically key level of 1,000 points for the first time since June 2005.

"The 1,000-point level has a lot of meaning for the Korean stock market. It took 16 years to get there and the level collapsed just in a year, with investors completely losing confidence about economy and government bailouts," said Kim Seong-ju, a market analyst at Daewoo Securities in Seoul.

Japan's Nikkei share average fell 7 per cent, down for a third day after earlier touching a 5-year low, and shrugging off late gains on Wall Street Sony slumped 12 per cent and was one of the biggest decliners in the index.