Yen dive causes rout in Asia
Most Asian stock markets and currencies fell through key support levels yesterday as the US dollar rose to a fresh seven-year high against the yen, stoking fears that Beijing would be forced to devalue the yuan.
The Taiwanese, South Korean, Singaporean and Malaysian stock markets tumbled between 3 and 5 per cent. The Hong Kong market dived 4.91 per cent.
Brokers said heightened fears of a yuan devaluation combined with the prospect of region-wide recession to make a potent cocktail, sharply eroding what little confidence remained in the region.
Technical Data currency analyst Patricia Lui said: 'It is not just bad, but it's very, very bad. In fact, everybody's trying to outdo one another in saying how bad it is.' Merrill Lynch economist and strategist Tan Min Lan said: 'If the yuan devalues, we could see another round of attacks on the regional currencies.' Some markets and currencies are already trading below their January lows and traders said it was hard - if not impossible - to see a bottom.
The yen set the negative tone for the day, taking a fresh beating and again falling below 141 against the US dollar after the first round of talks at the Group of Seven leading industrialised nations' meeting in Paris failed to produce any solid pro-yen measures.
A Japanese finance ministry official said Japan's economy was not only sluggish but conditions were becoming more severe.
That was exactly what the markets did not want to hear ahead of key economic figures due out tomorrow, which are likely to signal whether Japan will join the region's fast-growing recession club.
A Morgan Stanley analyst said: 'Further weakening of the yen versus the US dollar could trigger further devaluations of Asia - and even non-Asian - currencies against the dollar.
'If [there is] another round of yen depreciation and continued negative growth, a strong export recovery in the Asian economies will be unlikely.' Traders said investors were still pondering over the comments made by the mainland's central bank governor, Dai Xianglong, on Tuesday that the yen's weakness was knocking the mainland economy.
DBS Securities analyst S.W. Chu said: 'The message that [Mr Dai] wanted to convey was that there is no support for the yen, there is extra pressure on the yuan. It was a signal: if you do nothing, I may have to do something.' The Australian dollar continued its dramatic fall, hitting a 12-year low at one stage yesterday, just off its record post-float low.
The Taiwan dollar tumbled to its lowest level since March 1987.
The Indonesian rupiah was the biggest casualty, shedding 9.78 per cent to 12,900 to the US dollar on domestic selling.
Most foreign dealers do not quote the rupiah any more due to its dire liquidity.
US hedge funds are said to be betting down the Thai baht, Malaysian ringgit and Singapore dollar, which are far more liquid.
Aberdeen Asset Management director Hugh Young said: 'Everything looks very bleak in the region and things are going to get worse before they get better.
'There's no particular safe haven any more.' Traditionally safer markets in the region, such as Hong Kong, Singapore and Australia, are in the thick of the current turmoil.
Even the Indian stock market and rupee have been hammered because of the government's recent decision to test nuclear weapons.
Henderson Investors Asia-Pacific investments director Michael Watt said: 'Everyone is concerned and rightly so. We're in for a fairly widespread crunch and Hong Kong is in the middle of it at the moment.' Standard & Poor's MMS International economist David Cohen said: 'There was hope that stabilisation in the regional currencies had been achieved and the region would now be on a slow path to recovery, but the impact on the regional economies is turning out to be worse than expected.
'There is just so much pessimism in these regional markets now.'