(SINGAPORE) Stock markets around the world plunged yesterday following sharp losses in US equities on Tuesday, as the problems which began in the subprime mortgage market there continued to infect other parts of the financial markets.
The Straits Times Index fell 115.95 points or 3.3 per cent to end at 3,431.71, the lowest since May2.
In Australia, shares declined by more than 3 per cent, as reports said that two funds managed by Macquarie Bank, Australia's largest securities firm, were facing losses of up to A$300 million due to US subprime mortgage exposure.
Meanwhile, US investment bank Bear Stearns stopped investors from withdrawing money from another of its funds. Two of its other funds nearly collapsed in June after suffering massive losses linked to subprime mortgages.
Fears that the problems have now spread to the wider markets fuelled the bout of selling yesterday.
There's currently a flight to safety caused by more troubling news in the US credit markets,' said economist David Cohen at Action Economics.
Rising defaults and delays on payments by homeowners in the United States have led to losses by hedge funds and banks investing in securities backed by these payments.
This has in turn driven up borrowing costs for companies and buyout funds, as creditors tighten conditions for lending and investors shy away from new debt issues.
Low-cost debt has played a large part in financing private equity buyouts of public-listed firms in recent months. Speculation surrounding the deals and other potential targets has in turn driven up share prices in major markets.
Fears about how wide the subprime contagion has spread is now unsettling investors worldwide.
'No one knows where the ultimate subprime risk resides so investors across the globe are ducking for cover,' Simon Carter, head of North American equities at Aegon Asset Management in Edinburgh, told Bloomberg. Some of them hit the panic button yesterday.
In Japan, the Nikkei-225 index fell 2.2 per cent, while Hong Kong's Hang Seng Index fell 3.2 per cent. China's indices in Shanghai and Shenzhen both lost 3.8 per cent, while South Korea's Kospi index dived 4 per cent.
In South-east Asia, the Kuala Lumpur Composite Index ended 2.5 per cent lower, while key indices in Thailand, Indonesia and the Philippines also lost more than 2 per cent.
In Europe too, shares got off to a weak start, with London's FTSE-100 index trading 1.5 per cent lower at noon in the UK.
Mr Cohen said Asian investors would now be looking to see if the turmoil in the financial markets would dampen consumer confidence in the US, which would in turn affect demand for Asian exports. 'That's clearly the biggest concern right now.'
But economic fundamentals around the region and the world have been 'very solid', he added.
Kevin Scully, managing director of NetResearch Asia, said he expects to see more selling in the stock market here in the next few days, forced by margin calls. 'I think it's a good correction back to fundamentals.'
Jimmy Koh, United Overseas Bank's head of economics and treasury research, said financial markets were adjusting for a global repricing of credit risk.
'This is an issue of confidence. Once the dust settles, it's important to note that the fundamentals have not been eroded.'
The current sell-off would create a 'cleaner, more robust' financial system, he said.