Far East market shockwaves reverberate around the world

The shockwaves from the sell-off in South-east Asian stock markets continued to hit share prices across the region yesterday, sending ripples round the world. With the ban on "short selling" imposed by Malaysia limiting the damage there, Indonesia bore the brunt of investors' nervousness in the wake of signs of economic weakness and currency instability. The Jakarta index plunged 6.9 per cent, its worst fall for eight years, as the Indonesian rupiah, along with most of the other major currencies in the region, registered further falls against the dollar. The Philippine peso and the Thai baht fell close to record lows against the US currency, while the Malaysian ringgit ended at its lowest level for about 26 years.

Hong Kong and Singapore, two markets often seen as safer havens in times of trouble in the area, provided little immunity yesterday. The former colony's Hang Seng index slid 740.85 points to 14,135.25, its lowest point since last month's hand-over the China, bringing the two-day fall to over 9 per cent. In Singapore, the benchmark Straits Times Industrials Index recorded a 2.2 per cent slump yesterday.

Meanwhile, in Tokyo, the Nikkei 225 index closed at 18,229.42, down 222.03 points.

Western markets were again buffeted by the typhoon raging in the Far East, with London's FTSE 100 index down over 60 points at one stage and Wall Street 87 points lower on the Dow Jones index in early trading. However, both markets clawed back the earlier losses, with the Footsie managing to stay above the key 4,800 barrier, closing 27.9 points off at 4,817.5. French and German markets were also caught up in the storm, while Mexico, whose economic problems triggered the last big sell-off in developing markets, also opened lower, hit by Far Eastern fears. The leading IPC index opened 1.66 per cent down, after a 2.5 per cent fall the previous day.

Mahathir Mohamed, the Malaysian prime minister, did nothing to allay the fears of Western investors after commenting that the restrictions on short selling - the disposal of shares not actually owned by the seller in the hope of buying them back at a cheaper price - would remain in place until the market recovered to 1,000 points on the composite index. Yesterday, the index fell another 1.01 points to 811.17, after signs of local institutional buying towards the end of the trading session helped to trim earlier losses. The prime minister was also reported as saying that Malaysia may have recorded a trade deficit for the month of July.

Edward Goodchild, a fund manager at the London-based Foreign & Colonial investment managers, said Malaysia's action on short selling had de facto closed the market to most US and UK investors. The system of "free and free" settlement adopted by Malaysia meant shares or cash had to be deposited with a local broker before a sale or purchase of stock could be effected. This increased the risks for foreign institutions and most pension fund and other trustees demanded that no shares or money be handed over until a deal was done, known as "delivery versus payment".

This effective closure of the market "keeps the stock market index up, but doesn't stop selling pressure building up, just the ability to enact it", he said.

Local market players echoed these thoughts. David Lum of Nava Securities in Singapore said: "There is an overall disillusionment with the structure of South-east Asia markets. The integrity of the markets isn't what it was thought to be."

London fund managers suggested that the events in the Far East could make Western investors more reluctant to invest in emerging markets. "The tolerance for taking risks by major investors has reduced", according to Michael Hughes, global strategist at BZW in London. "They are not in any rush to take advantage of what might be seen to be cheap valuations on the back of the shake-out."

Mr Hughes said the events in the Far East a poorer global liquidity were pushing investors into cash and the safer waters of the US bond market.

Matthew Merritt, emerging market strategist at ING Barings, agreed that cash was set to become a more popular investment for institutions. "Given the uncomfortable global backdrop of developed markets under pressure, the first port of call is into cash", he said.

Others suggested Hong Kong could now be the most vulnerable market in the south-east Asian region, given the threat that the need for higher interest rates there could put at risk the recovery in property prices.

Yesterday, the Hong Kong government was attempting to allay fears that the stock market crisis could spill over into the economy as it published a maintained growth forecast of 5.5 per cent of gross domestic product for 1997. Government economist KY Tang claimed that the area's "economic fundamentals are good" despite recent fluctuations in the stock market. He added that the market's movement did not yet signify a setback to consumer sentiment.

Comment, page 19,

Market report, page 20

Ian Thorpe had Rio 2016 in his sights
world cup 2014LIVE BLOG: Hosts Brazil take on the Netherlands in third-place play-off
Tommy Ramone performing at The Old Waldorf Nightclub in 1978 in San Francisco, California.
peopleDrummer Tommy was last surviving member of seminal band
Life and Style
Swimsuit, £245, by Agent Provocateur

Diving in at the deep end is no excuse for shirking the style stakes

Life and Style
Several male celebrities have confessed to being on a diet, including, from left to right, Hugh Grant, Benedict Cumberbatch and Ryan Reynolds
life...and the weight loss industry is rubbing its hands in glee
Spectators photograph the Tour de France riders as they make their way through the Yorkshire countryside
voicesHoward Jacobson: Line the streets for a cycling race? You might just as well watch a swarm of wasps
Life and Style
lifeHere's one answer to an inquisitive Reddit user's question
Arts and Entertainment
'Eminem's recovery from substance abuse has made him a more potent performer, with physical charisma and energy he never had before'
arts + entsReview: Wembley Stadium ***
Joe Root and James Anderson celebrate their record-beaking partnership
cricketEngland's last-wicket stand against India rewrites the history books
peopleDave Legeno, the actor who played werewolf Fenrir Greyback in the Harry Potter films, has died
ebookA unique anthology of reporting and analysis of a crucial period of history
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Information Security Manager (ISO 27001, Accreditation, ITIL)

£70000 per annum: Harrington Starr: Information Security Manager (ISO 27001, A...

Biztalk - outstanding opportunity

£75000 - £85000 per annum + ex bens: Deerfoot IT Resources Limited: Biztalk Te...

Trade Desk Specialist (FIX, Linux, Windows, Network Security)

£60000 per annum: Harrington Starr: Trade Desk Specialist (FIX, Linux, Windows...

Service Desk Analyst (Windows, Active Directory, ITIL, Reuter)

£35000 per annum: Harrington Starr: Service Desk Analyst (Windows, Active Dire...

Day In a Page

A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice