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SCMP Reporter

Investors draw on experience that past attacks had little long-term impact

Asian equity markets yesterday reacted calmly to Thursday's  terrorist  bombings in London as investors drew on  experiences from similar deadly attacks  that had  had  little economic impact beyond the immediate aftermath.

The resilience began to show only a few hours after the explosions on three Underground trains and a bus left at least  50 dead,  when European equity markets, the US dollar and oil prices began to rebound from the initial  sell-off.

After an intraday drop of  almost 4 per cent,  London's FTSE-100 Index finished Thursday's session only 1.36 per cent lower and most of that was erased after London and other major European markets opened higher yesterday.

The V-shaped recovery of the London stock market was mirrored  elsewhere, leaving a sliding British pound as the only major financial casualty from the attacks by  last night, Hong Kong time. Meanwhile, the Dow Jones Industrial Average had finished 0.31 per cent higher  on Thursday,  helping limit  losses across Asian stock markets yesterday.

Several  regional markets, including Hong Kong, still  closed slightly lower, although traders attributed this partly to local factors and profit-taking.

In Tokyo, the market was higher for most of the day but  ended down after investors reacted to weaker than expected machinery orders.

'It's a learned behaviour,' said Malcolm Wood, Asian strategist  at Morgan Stanley, noting that financial markets and the affected economies recovered relatively quickly after the  attacks in the United States in September 2001, in Bali in 2002 and last year's train bombing in Madrid. 'As awful as they are,  these  sorts of events tend to be good buying opportunities.'

Travel-related stocks  took a beating in Asia yesterday amid concerns that the threat of more terror attacks could make people cut back on travelling. Airlines, which were already under pressure from rising oil prices, were led lower by Korean Air  and Air New Zealand.

As soon as  news of the attacks  dominated the coverage on every leading television  network, money started flowing into US treasuries,  typically regarded as a safe haven during turbulent times.

The 10-year yield fell to a low of 3.93 per cent from 4.06 per cent just before  and credit spreads widened  but this was quickly regarded as a buying opportunity for corporate and emerging markets debt, one market participant said.

This led to a sharp bounce in Treasury yields and allowed Asian credit spreads to hold relatively stable yesterday, he noted.

Some observers did see potential for a lingering fall-out from the attacks. Daniel Chan Po-ming, an  investment strategist at DBS Bank Hong Kong, said the London blasts were likely to halt hedge fund speculation on oil prices as uncertainties would increase.

'After the blasts, it seems there is a greater chance for oil prices to go down to US$50 a barrel as global economic growth will  probably slow down. Hedge funds rushed to take profit and that's why oil futures fell,' he  said.

Crude oil futures for August delivery plummeted to US$57.20 from a record high of US$62.10 just before the news but had rebounded to $61.51  last night.

The attacks   could also affect  the interest rate cycle, Mr Chan said. 'The market is  vulnerable  and central banks will think twice before they raise interest rates further,' he said. 'The rate reduction cycle may come earlier than  expected.'

However, the  US will be an exception. Mr Chan said  the threat of twin deficits and a housing bubble probably meant the US still had 25 to  75 basis points of interest rate increases left.



Asian markets blink at London blasts