March 28, 2024

Markets Slip in Asia and Europe Over Debt Woes

HONG KONG — Stock markets tumbled across the Asia-Pacific region and in Europe on Wednesday and the price of gold shot up as investors around the globe remained nervous about the debt problems in the United States and Europe.

Several leading markets in Asia dropped 2 percent or more, showing that the region’s largely positive economic outlook is doing little to insulate its stocks from the jitters that have battered global markets this year.

The Kospi in South Korea closed 2.6 percent lower, in Australia, the S.P./ASX 200 shed 2.3 percent and in Taiwan, the Taiex sagged 1.5 percent.

In Japan, the Nikkei 225 index fell 2.1 percent to 9,637.14 points.

The Hang Seng in Hong Kong and the Straits Times in Singapore were about 2 percent lower by midafternoon.

And key indexes in Europe were more than 1 percent lower soon after the open.

By contrast, gold, traditionally seen as a safe investment in times of uncertainty, spiked to yet another nominal record high of $1,671 per ounce.

The stock market moves followed a similarly dismal day for Wall Street on Tuesday, as investors once again became worried about the ability of several European countries to meet their debt obligations, and took in the fact that the compromise over the U.S. debt ceiling did not erase the risk of a ratings downgrade.

Moody’s Investors Service and Fitch Ratings hammered home the latter point on Tuesday. Both agencies reaffirmed their triple-A rating for the United States, but Moody’s put a negative outlook on its rating
, a sign of a possible downgrade further down the line. It warned that further fiscal consolidation would probably be needed and that any slowing in U.S. economic growth also would pose a risk.

Fitch echoed the caution, saying that while the debt ceiling agreement reached in Washington was an important first step, it was “not the end of the process toward putting in place a credible plan to reduce the budget deficit to a level that would secure the United States’ AAA status over the medium-term.”

The U.S. debt issue, and the possibility of a downgrade to a credit rating that had once been deemed bulletproof, has caused widespread concern among analysts and policy makers, especially in those nations that hold a high level of U.S. debt.

Analysts at Bank of America Merrill Lynch earlier this week titled a research note on the U.S. debt deal as a “stay of execution,” and Barclays Capital economists noted in a report on Wednesday that while the political wrangling prior to debt ceiling agreement may be over, “the fundamental story underlying U.S. fiscal accounts and debt profile remains.”

Reflecting the concerns among holders of U.S. Treasuries, Zhou Xiaochuan, the governor of the Chinese central bank, on Wednesday said the People’s Bank of China would closely monitor U.S. efforts to tackle its debt.

As the United States’ biggest foreign creditor — holding an estimated $1.5 trillion in U.S. government debt — China is especially sensitive to any developments that could undermine the value of its Treasuries holdings.

“Large fluctuations and uncertainties in this market would undermine the stability of international financial system and hinder global recovery,” the central bank said in a statement on its Web site
. “China hopes the U.S. administration and the Congress would take responsible policy measures to handle its debt issue in light with the interests of the whole world including those of the United States.”

China has signaled that it wants to diversify its holdings by purchasing other assets, but its ability to do so is limited as other markets, like those of European or Japanese debt, are not big or liquid enough to absorb the bulk of China’s foreign-exchange reserves, which are the largest in the world.

The turmoil in the United States has also had painful implications for Japan, which has seen its currency rise to ever-higher levels against a weakening dollar.

The Japanese currency was trading at around 77.2 yen per dollar on Wednesday. That is not far off a record high it hit against the dollar after the devastating earthquake on March 11, and represents a rise of more than 4 percent over the past month alone.

Despite Japan’s poor growth prospects, the yen has been gradually ascending since the global financial crisis, adding pain to Japanese exporters, who have seen their goods become more expensive in overseas markets.

The latest currency movements have prompted a volley of warnings from Japanese policy makers aimed at halting the yen’s ascent.

“Regardless of whether we intervene in the currency market or not, the government wants to do its utmost to prevent the yen from rising further,” Finance Minister Yoshihiko Noda said Wednesday, Reuters reported.

The Japanese central bank, meanwhile, is widely expected to announce further steps to prop up economic growth at the end of a two-day policy meeting on Friday, most likely by expanding a program that buys assets ranging from government bonds to private debt.

Article source: http://www.nytimes.com/2011/08/04/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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