Asian crisis sends shares into a dive

Market turmoil: Pound and dollar stronger as equities tumble in London and New York

A NEW BOUT of financial turmoil in Asia sent share prices tumbling in London and New York yesterday but also drove the pound and dollar higher as investors around the globe flocked to whatever safe havens they could find.

Speaking at the European Union summit in Cardiff, Tony Blair, the Prime Minister, went so far as to describe Europe and the US as "two pillars of stability" in the worst global economic crisis since the early 1980s.

The Japanese yen weakened to its lowest level against the dollar for eight years, passing the 146 level with no signs that its fall might be levelling out. Its latest nosedive started last week after comments by Robert Rubin, the US Treasury Secretary, were seen as ruling out any prospect of the G7 coming to its rescue with joint intervention.

News that Japan is in recession has sent a shiver through the rest of Asia, which depends on the region's biggest economy for its own recovery. Given their first chance to respond to confirmation on Friday that Japan's GDP is declining, markets across Asia tumbled yesterday.

In Japan, sitting uneasily at the centre of the storm, the Nikkei index fell by only 1.3 per cent, down 197 points at 14,825.17. But Hong Kong's Hang Seng index dropped nearly 6 per cent to close 453 lower at 7,462.5.

Investors and Asian governments are showing signs of impatience over the slow pace of financial reform in Japan and the cautious reflationary measures adopted by the government.

Yesterday Hong Kong's Chief Executive, Tung Chee-hwa, on a visit to Australia, said: "At the moment, of course, the best thing to do is to persuade the Japanese government to get on with it." He was reacting to news that unemployment in Hong Kong had climbed to a 15-year high.

Elsewhere in Asia other stock markets continued their remorseless decline. The Thai market shed 5.7 per cent, Seoul hit an 11-year low with a 4.8 per cent decline, and Manila, Malaysia and Singapore all saw more than 4 per cent wiped off the value of shares.

These Far Eastern nerves infected stock markets around the globe. Although a combination of a transport strike and England's first World Cup match kept trading unusually quiet in London, the FTSE 100 index ended 54 points lower at 5,715.7. At one point it had shed 124 points, amounting to a paper loss of some pounds 22bn, in the third successive day of falling share prices.

On the other hand the pound gained two pfennigs to reach DM2.96, rising with the US currency. The sterling index against a range of currencies rose 0.8 to 105.7.

On Wall Street the Dow Jones index had fallen 134 points by mid-morning, although it later recovered to 8,765, just 70 points down.

But the safe haven status of Treasury bonds took long-term yields to a record low. The benchmark 30-year bond gained nearly a full point, its yield dipping to 5.62 per cent - the lowest since its first issue in 1977. In London, gilts futures prices reached all-time highs.

Investment analysts were sharply divided in their views about the implications of Asia's cataclysm for the western economies. Gerard Lyons of DKB in London, one of the pessimists, predicted a slowdown in the US and UK, where exporters will be hit by the loss of Asian markets. This in turn would keep shares falling, he warned.

However, Michael Hughes at ING Barings Asset Management predicted that Asia's woes would boost western markets. "Japan has been saving for the rest of the world, and those savings have to go somewhere. They are clearly not being spent in Japan," he said.

Yet economists did agree that events in Asia ruled out a rise in US interest rates for now, even though growth is still charging ahead at an extraordinary pace.

About prospects for UK interest rates there was less certainty, with the City's eyes on official earnings figures due tomorrow. A further increase in pay growth will be seen as a possible catalyst for the Bank of England's Monetary Policy Committee to raise the cost of borrowing once again.

Hong Kong's Mr Tung, speaking in Australia, had just been given news that one-month interbank loan rates had soared to 20 per cent, compared with their Friday close at 12.3 per cent, as investors scrambled to withdraw Hong Kong dollar deposits. Later in the day the rate eased back to around 15 per cent.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?