Asian stocks likely to be on guard
Asian stocks likely to be on guard
SINGAPORE (Reuters): Asia's equity markets will track the weak yen again this week as worries about the Japanese currency's dive and its effect on other economies continue to haunt the region, analysts said.
Most bourses lost ground sharply last week as the yen tumbled to a near eight-year low of 144.75 to the dollar and as Japan released growth figures showing the economy had entered its first recession in 23 years.
The country's first quarter gross domestic product posted a shocking annualized 5.3 percent drop, after fourth quarter figures for last year had shown a 1.3 percent contraction.
The yen's fall intensified speculation that China could devalue its yuan to boost exports in the face of depreciating Asian currencies. Analysts say that could set off a new chain reaction of currency and stock market falls throughout the region.
"We know the economies are getting worse, not better," said Hugh Young, managing director at Aberdeen Asset Management.
This week "will be more of the same", he said.
All key Asian stock markets finished last week lower. Their losses ranged between two percent on the Nikkei to 12.2 percent on Thailand's SET index.
South Korean stocks sank 11.5 percent on the week, after losing 8.1 percent or 26.61 points on Friday to end at 302.09, the lowest finish in 11 years. The index slumped below the key 300-level briefly on Saturday as traders reacted to the Japanese GDP figures but recovered later in the session to close at 302.81.
As well as keeping a close eye on the yen and other regional woes, the Seoul market is likely to focus on a news conference on Thursday or Friday at which the country's Financial Supervisory Commission is due to announce a list of non-viable companies.
The commission's deputy spokesman recently told Reuters that bank creditors would cut new credits to companies on the hit list and call in loans to encourage mergers or liquidation.
Japan's stock market closed before the dismal GDP figures were released, and analysts said they expected the Nikkei index to lose more ground this week as economic recession and the yen's downtrend fueled market pessimism.
"The sell-Japan camp will like it (the GDP number) very much," said Pelham Smithers, a strategist at ING Barings.
On Friday, the 225-share Nikkei average closed at 15,022.33, up just over eight points on the day but down 301.1 points from its finish a week earlier.
"The number one variable has to be the yen," said Liew Yin Sze, regional economist at J.M. Sassoon. "I think it's beyond me to tell where the yen will be."
The yen ended New York trade at 144.18/28 to the dollar on Friday, after hitting a low of 144.75 earlier, its lowest point since August 1990.
Analysts said the yen's weakness was likely to weigh on Hong Kong stocks again in the coming week, sending the Hang Seng Index down to test key support levels.
The Hang Seng Index dived 7.6 percent last week, below the 8,000-level, amid worries that Japan's currency fall could put the territory's dollar-peg under strain and force local interest rates up.
"It's a very technical market short-term and it is totally sentiment driven," said Robert Sassoon, head of research at SG Securities.
"We think fair value of the market is above this (the current level), around 8,200 in the very near term but the market continues to have a tendency to undershoot that," he said.
The Hang Seng Index closed up slightly at 7,915.44 on Friday.
Even without the yen's decline, the outlook for many Asian stocks is looking shaky.
Aberdeen Asset Management's Young said his company, which has more than US$1 billion under management, was being "very careful" about stock picks by, for example, choosing companies with strong balance sheets and reporting practices.
Mutual fund behemoth Fidelity Investments has seen both its assets under management and its revenue dive by 45 percent in the last 12 months.
In the past week, Fidelity's funds under management dropped to $17 billion from $20 billion a week or so ago.
"Actually, of course, the numbers have gone down significantly just in the last week with all the devaluations," Brett Goodin, managing director for Fidelity's Asia-Pacific region, told Reuters on Friday in Hong Kong.
Earnings prospects across the region are dim.
Still, Taiwan's stronger fundamentals have not shielded it from the sell-off. Its dollar was dragged to an 11-year low by the yen last week, and attempts to support the stock market by the government have foundered.
Taiwanese Finance Minister Paul Chiu acknowledged on Thursday that government-linked funds had been buying stock, saying that if they were finding attractive value in the deeply corrected market, investors should too.
Despite the appeal, Taiwan shares ended down 93.63 points or 1.30 percent at 7,117.11 on Friday.
"The falling yen is the main culprit," Nomura Securities research head Jeffrey Liang said. "There is no indication it will stop falling soon. Frankly, Taiwan has absolutely no control over the situation."
India's shaky stock markets are also expected to face negative sentiment this week after the minority coalition government tinkered with its maiden budget for the third time in 11 days and the world's top industrialized countries froze most loans to the country as punishment for its recent nuclear tests, fund managers and analysts said.
The Bombay Stock Exchange finished 2.06 percent, or 70.48 points, lower at 3,347.41 last week. It has lost about 20 percent since early May and is down 12 percent since the June 1 budget.
"I can only pray," said Anand Radhakrishnan, a fund manager at Sundaram Newton Asset Management Co Ltd in the southern city of Madras. "I think there's still some downside. The market has not bottomed out."
Some markets may provide trading opportunities after the steep losses, said Liew of J.M. Sassoon.
In Singapore, for example, "there are some good values," he said. Any retracement of the Straits Times index toward a January low of 1,031 could draw buying, he said.
The index finished on Friday at 1,091.49, up 0.61 percent or 0.43 percent.