WORLD MARKETS TUMBLE
MANILA, MARCH 1, 2007 (STAR) By Rica Delfinado - World stock markets nosedived yesterday as a wave of selling swept global markets, triggered by fears of a slowdown in China’s economy.
While Chinese stocks immediately bounced back after their biggest decline in a decade, stock markets in Asia and Europe remained down amid investor jitters about possible slowdowns in the Chinese and US economies.
Shares in the Philippines, Japan, South Korea, Singapore, India and Australia tumbled more than two percent after dismal overnight losses on Wall Street, which had its worst day since the Sept. 11, 2001 terrorist attacks.
Philippine stocks plunged 7.9 percent, their worst drop since 1997 at the height of the Asian financial crisis.
During yesterday’s trading at the Philippine Stock Exchange (PSE), the main composite index plunged by 263.84 points to close at 3,067.45.
The index slumped by as much as 10.2 percent earlier in the day.
"What happened today in our stock market reflected a nervous reaction to the sharp drop in the benchmark index of China, which suffered its single biggest drop in a decade. Our market just followed a global retreat induced by the tumble in the Chinese stock market. While we cannot help but feel the repercussions from the ensuing global reaction, I’d like to emphasize that the underlying concerns that triggered the jolt in China are internal to that country," PSE president Francis Lim said.
"There are also reports that the Chinese government wants to crack down on fraudulent or highly speculative stock market practices. But the PSE, along with the Securities and Exchange Commission, has long ago put in place measures to discourage fraudulent stock trading practices and to block the listing of dubious stocks," Lim said.
For his part, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said the slump in the stock market "is temporary and not reminiscent of the 1997 financial crisis."
According to Tetangco, the country can cope with the current situation given the improvements made in the macroeconomic area.
"The Philippine economy is in a better position to address the volatility in the financial markets," Tetangco said.
"Greater flexibility in the exchange rate, liquidity in the market and a smaller budget deficit have reduced the country’s dependence on external financing and have strengthened the financial system," he added.
Analysts, however, said Tuesday’s sell-off could also provide some good buying opportunities.
"I think they (investors) could start accumulating at this level," Cilette Liboro said. "We don’t know how steep this side will go… how long the panic will last. But clearly at these levels there are some good buying opportunities."
While several Asian markets trimmed big early losses by afternoon, nervous investors were still wary of whether the slump marks the beginning of a downward spiral or just a one-time jolt to cool overheating markets.
"We don’t need to worry about a big reduction from here, but this correction could continue for the next couple months," said Shinichi Ichikawa, an equity strategist with Credit Suisse First Boston in Tokyo.
In China, the Shanghai Composite Index rose 3.9 percent yesterday to close at 2,881.07, rebounding from its 8.8 percent plunge Tuesday - its biggest drop in a decade.
Bullish comments in the state-controlled media appeared to reassure jittery domestic investors, who account for virtually all trading. China will focus on ensuring financial stability and security, the official Xinhua News Agency cited Premier Wen Jiabao as saying in an essay due to be published in today’s issue of the Communist Party magazine Qiushi.
Authorities also denied rumors of a 20 percent capital gains tax on stock investments - speculation that had played a role in Tuesday’s plunge.
Still, investors dumped stocks across much of Asia yesterday, partly unnerved by the 3.3 percent drop in the Dow Jones industrial average.
Comments Monday from former US Federal Reserve chairman Alan Greenspan, who said a recession in the US - a huge export market for Asian companies - was "possible" later this year, also unnerved investors.
Japan’s Nikkei 225 stock index tumbled 515.80 points, or 2.85 percent, to 17,604.12.
Australian stocks closed down 2.7 percent after falling as much as 3.5 percent, while Singapore’s Straits Times Index was down 3 percent to 3,136.58 points, after sinking as much as 5.6 percent earlier.
In Europe, Britain’s benchmark FTSE 100 Index was down 1 percent to 6,224.40 in morning trading, while France’s CAC 40 Index lost 2.3 percent.
Many Asian markets were due for a correction after their recent spectacular performance, analysts said.
Benchmark indexes in China, Australia and Singapore had all hit records in February. Before this week’s plunge, Malaysian stocks had gained 17 percent this year, while Philippine shares had climbed about 12 percent.
Yesterday’s sell-off was a limited, knee-jerk response, said Kiichi Fujita, an equity strategist with Nomura Securities in Tokyo. "It’s a bit of an overreaction," he said.
Other equity analysts said the market’s volatility could trigger more selloffs, despite sound economic data.
"A lot of that exuberance about just buying anything at all cost just starts to evaporate if the market has big falls like this," said David Halliday, associate director at Macquarie Equities. "I think the important thing to note is that this hasn’t been triggered by an economic, financial or political crisis."
Japan’s Chief Cabinet Secretary Yasuhisa Shiozaki echoed that sentiment, trying to quell concerns about the Tokyo market by stressing that overall fundamentals in Japan were still strong.
"On a broad perspective the corporate sector continues to perform well," Shiozaki said. "A long-term economic recovery is continuing."
Australian Treasurer Peter Costello predicted the plunge in China’s share market would trigger "volatility on equity markets for some time."
But his overall assessment of China’s economy was positive, telling reporters the Asian giant would continue to grow, albeit "in fits and starts."
Some regional brokers said they saw an element of panic selling among retail investors but that more experienced investors were sitting it out. Other market players were on the look out for bargain hunters to emerge.
"If your target is gains by the end of 2007, this is a good chance to buy," said Credit Suisse’s Ichikawa. "But if it’s the end of March, I can’t say that." -with AP
Chief News Editor: Sol Jose Vanzi
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