Asian Stock Markets Battered By U.S. Credit Turmoil

Asian stock markets battered by US credit turmoil

http://www.forbes.com/markets/feeds/...fx3989124.html

08.06.07, 4:51 AM ET

SINGAPORE (Thomson Financial) - Stock markets across Asia tumbled Monday, dragged down by Wall Street's sharp decline Friday as investors continued to fret about the growing problems in the US credit markets.

The Singapore Straits Times Index was a key decliner, shedding 3.9 percent of its value at last check. Banks were among the worst hit as players dumped stocks in the sector amid worries over exposure to collateralized debt obligations (CDOs), which are securities backed by bonds and loans and which could include US subprime mortgages.

Banks have been downplaying their exposure to the US credit crisis, but late last week, DBS Group Holdings, the biggest lender in Singapore, said it has exposure of about 850 million US dollars. It dismissed the sum as insignificant relative to its capital position and said it is comfortable with its investment portfolio.

United Overseas Bank is reported to have exposure of less than 500 million Singapore dollars, while Oversea-Chinese Banking Corp has about 430 million dollars at risk.

Contagion fears
Other stock indexes were also hit hard. In Hong Kong, the Hang Seng was last down 2.3 percent, the S&P/ASX 200 closed down 1.7 percent, South Korea's benchmark, the KOSPI, closed down 1.2 percent, Taiwan's Taiex was off 1.3 percent and Thailand's SET index slumped 2.2 percent.

In Japan, the Nikkei 225 Stock Average finished down 65.4 points or 0.4 percent at 16,914.46. Traders said a weakening yen had helped the market trim its losses, raising interest in big exporters such as Toyota.

Elsewhere, the Kuala Lumpur composite index fell 3 percent and the Jakarta composite index slid 4.5 percent. Manila's composite index ended down 2.8 percent to its lowest level in more than three months.

Wall Street plunged anew Friday, sending the Dow Jones Industrial Average down 281 points or 2 percent after comments from a major investment bank exacerbated the market's fears of a widening credit crunch.

The drop came after two volatile weeks on Wall Street where investors have been spooked by growing numbers of bad home loans and rising risk aversion that it has made it harder to raise money to finance leveraged buy-outs.

This time, the catalyst for a sharp skid was Bear Stearns Cos' Chief Financial Officer Sam Molinaro, who described the turmoil in the credit market as the worst he had seen in 22 years.

Bear market
Bear Stearns remained in the headlines over the weekend with news that co-President and co-Chief Operating Officer Warren Spector has resigned following the meltdown of two hedge funds that invested in risky mortgage-backed securities.

Alan Schwartz, who had been Bear Stearns' other co-president and co-COO, will become the sole president effective immediately, and Molinaro will assume the role of COO in addition to his current duties as CFO, the firm said in a statement Sunday afternoon. Jeffrey Mayer, co-head of the fixed income division, will take Spector's seat on Bear Stearns' executive committee.

'In light of the recent events concerning (Bear Stearns Asset Management's) High Grade and Enhanced Leverage funds, we have determined to make changes in our leadership structure,' Chairman and CEO James Cayne said. 'I have every confidence in this team to continue Bear Stearns' 84-year legacy of success and profitable growth.'

Spector, 49, had spent his entire career at Bear Stearns since joining the firm as a trader in 1983 and had been considered a likely successor to Cayne, 73.

But the collapse of the two hedge funds in the asset management unit that Spector oversaw put him and the firm under pressure. The funds filed for bankruptcy protection Tuesday, two weeks after the company told investors that one with assets of about $638 million was essentially worthless, and another worth about $925 million before taking on losses in March had lost more than 90 percent of its value.

Both funds were squeezed after Bear Stearns made wrong-way bets on the home mortgage market and was caught as loans to risky borrowers began to default. Bonds backed by home loans and other similar investments have lost value amid rising homeowner defaults as the housing market enters its third year of decline.

As reports became public that Cayne had asked for Spector's resignation, Standard & Poors said Friday it is considering cutting Bear Stearns' credit rating because of the firm's exposure to the distressed mortgage and corporate buyout markets.

Selling overdone?
However, Citigroup said Monday that the recent selloff in Asian markets is overdone and that regional banks, insurance companies and non-bank financial institutions should be able to manage their exposure to the US crisis.

'The impact of US subprime asset-quality problems and falling prices of structured products such as CDOs, mortgage-backed securities (MBS) and asset-backed securities (ABS) on Asian financials should be manageable,' Citigroup analyst Tracy Yu said in a note to clients.

Taiwan's insurance companies and Singapore's banks have the highest CDO exposure, she said.

'We believe Hong Kong and Chinese banks and insurers have small exposure to CDO, MBS and ABS,' Yu said.

Banks in Malaysia, alongside Indian and Indonesian banks are reported to have no or minimal exposure, the analyst said.

Malaysia's largest lender Maybank owns credit-linked notes issued by financial institutions that have significant subprime exposure but the amount is fairly small at 60 million dollars, according to Yu.

Chinese markets bucked the negative trend in the region on Monday. The Shanghai Composite Index was last up 3.5 percent, while the Shanghai A Index gained 3.5 percent.