Monday, October 27, 2008

Bloodbath in the markets continues

Asian stocks plunged today, for the fourth day in a row, on concern (panic) economic stimulus measures (bumbling government policies) will fail to stop a global slowdown (recession).

Japanese shares fell to their lowest level in 26 years and the Hang Seng had its biggest one-day decline since 1997, closing down 12.7%. Meanwhile, trading halts were triggered in the Philippines and Thailand after the country's benchmark gauges lost 10%.

Jonathan Ravelas, chief market strategist at Banco de Oro Unibank Inc, described the day’s trading as “a bloodbath”.

Japan's Prime Minister, Taro Aso, said he'd draft measures to help counter the financial crisis. For some reason, Mr Aso’s clear and definitive plan had no effect on the sell off. Perhaps Mr Aso should have threatened to write a strongly worded memo?

Yoshinori Nagano, a Tokyo-based senior strategist at Daiwa Asset Management Co, noted that “in this kind of market that's moving without sensible reasons, only God knows what's going to happen tomorrow.'' Very insightful. Mr Ngano also announced his appointment as Sarah Palin’s financial advisor.

Meanwhile, in South Korea, the Bank of Korea slashed its benchmark interest rate by 75 basis points to 4.25 per cent and said it would buy up to Won10,000bn ($7bn) of bank bonds to provide more liquidity to the banking sector. The action came as President Lee Myung-bak said the local currency was stable and the country was far from repeating the Asian financial crisis a decade ago … ops, did he say that out loud? Mentioning the fact that South Korea required a $57bn bail-out from the IMF to avoid a national default during ’97-’98 Asian financial crisis was probably not the best way to calm the markets.

In response to a question about the Bank of Korea’s actions, Steve Hanke, professor of applied economics at Johns Hopkins University, noted that the rate cut “won't make much difference right now." His reasoning, which I think is on the money, is that “they're really in the middle of a complete panic and probably part of the panic has been created internally by making a kind of ad hoc policy. They don't seem to really have a coherent game plan.” I pretty sure Prof. Hanke’s comments apply to all the economies in the region at the moment.

I think it is time to start selling my patented integrated futon-safe invention. You heard it here first.

(Bloomberg and FT)

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