Accessibility links

Asia Stocks Fall on Fears of Liquidity Crunch

  • Heda Bayron

Share prices across Asia fell sharply as the fallout from the U.S. sub-prime loan crisis widens. VOA's Heda Bayron reports from Hong Kong.

Stock analysts say fears that the global financial system would experience a credit crunch triggered a market sell off in Asia Friday.

Analysts say investors are worried that funds for businesses are drying up as a result of the U.S. sub-prime mortgage problem. That prompted investors to flee the stock markets in favor of less risky investments.

"This (liquidity concern) adds of course to the general risk aversion in the markets," said Jan Lambregts, a treasury strategist at Rabobank International in Hong Kong. "With many of the Asian equity markets, emerging markets being at obviously high risk, it runs that people in general turn away from risky assets and that would have impact on equity and some of the Asian currencies as well."

On Friday, the Bank of Japan injected a trillion yen or $8.4 billion, into the financial system, while Australia's Reserve Bank released more than $4 billion.

These follow similar actions by the European central bank and the U.S. Federal Reserve Thursday to calm the markets.

By putting more money into the financial system, the central banks hope to make sure there is plenty of cash available for businesses that need to borrow to fund operations.

Wall Street lost nearly 3 percent Thursday as investors sold on news that the French bank BNP Paribas Thursday froze three funds exposed to U.S. sub-prime loans.

The U.S. sub-prime loan sector lent money to those who otherwise would not qualify for mortgages because of poor credit records. As interest rates rose, many of those borrowers defaulted and some lenders have gone bankrupt, creating a wider credit crisis in the United States.

Lambregts says although Asian exposure to the U.S. sub-prime loan market appears to be limited, some Asian banks are still feeling the pinch.

"One of the main problem we are dealing with is that whereas some people have made guesstimates (estimates) of the extent of the damage, the losses that may come from sub prime segment, we are not sure about the distribution of those," he explained. "The sense is that Asian banks are not in the first line of the losses. However, as we can see and this is the nasty part of contagion is that even banks that are completely not exposed to sub-prime can be affected."

Japan's Nikkei 225 index closed 2.37 percent down at 16,764 - its lowest in about five months. South Korea's Kospi Index sank 4.2 percent and Hong Kong's Hang Seng Index ended 3 percent lower.

XS
SM
MD
LG