Stocks in Hong Kong, Japan and South Korea rallied on Tuesday, boosted by irresistible valuations, pushing down the yen, though investors were still expected to pull money out Asia in anticipation of a deep global slowdown.
The bargain hunting was not expected to spread to Europe, where major stock indexes were seen opening as much as 2% lower, according to financial bookmakers, as sharply slower growth expectations were priced in.
Large financial institutions such as Mitsubishi UFJ Financial Group, Japan’s biggest lender, saw their stocks tumble for a second day as investors focused on the investment portfolios of Japanese banks that have likely deteriorated after the Nikkei share average fell 25% this month to a 26-year low. “We are recouping our losses now after such big declines. But there’s still some concern about the depth of the US recession,” said Louis Wong, research director with Phillip Securities in Hong Kong. “The yen has weakened so that may have helped this rally.”
Investors from hedge funds to mutual funds have been cutting their holdings of emerging market assets to raise cash for redemptions and to reduce the risk of further losses. The rapid pace of declining global equity markets have caused valuations of some Asian stocks, using measurements like price-to-earnings ratios, to tumble to levels as in Hong Kong’s case last seen after the Asian financial crisis.
“We dont know whether this is the fabled ‘capitulation’ because we dont know how far the hedge fund sector has to shrink. But we do think that the monetary storm may be peaking, despite the further widening in plain vanilla credit spreads, and stress-tested PEs may be approaching the sensationally low levels needed to revive risk appetite (for those investors able to buy, that is),” HSBC equity strategists said in a research note.
The yen’s drop came a day after Group of Seven powers issued a rare statement singling out the yen’s volatility as a threat to market stability, a move that was seen giving Japanese officials scope to intervene. The dollar soared almost ¥3 in less than an hour to a high of ¥96.20 before slipping back to ¥95.35. The euro shot up more than 4% to a high of ¥120.64 before slipping back to ¥119.30. The Nikkei index finished 6.4% higher after earlier dropping to its lowest since 1982. Japan earlier said it planned to impose a ban on naked short selling to deal with turmoil in the stock market.
The MSCI index of Asia-Pacific stocks outside Japan rose for the first time in five days, up 1.8% after earlier hitting a 4-year low. The index is down 60.7% so far this year, exceeding the 49.7% decline in the all-country world index. Hong Kong’s Hang Seng index climbed 6.1% after plummeting more than 12% on Monday in its biggest single-day decline since 1997. Shares of global lender HSBC jumped 9.3%, leading the rebound.
South Korea’s benchmark KOSPI rallied 5.6%, led by high-tech exporters like Samsung Electronics. The Korean central bank’s biggest ever rate cut on Monday as well as a host of measures to bolster markets have had spotty success in boosting sentiment on equities. (Reuters)