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Renewed Fears of Global Slowdown Chill Asian Investors

A man walks by an electronic stock board of a securities firm in Tokyo, September 5, 2011.

A man walks by an electronic stock board of a securities firm in Tokyo, September 5, 2011.

Asia's key stock indexes fell sharply Monday, largely on disappointing data about employment in the world's biggest economy.

Japan’s benchmark index, the Nikkei, dropped 166 points, closing off nearly 1.9 percent. Analysts say the yen’s rise against the euro also influenced selling in Tokyo.

A flight to safer assets drove the price of Japanese government bonds higher.

The stock indexes for Hong Kong, Taiwan and Shanghai also dropped. Australia’s benchmark index fell 100 points, to close off nearly 2.4 percent.

But the biggest loser of the day was South Korea’s KOSPI. It plunged 4.4 percent despite being under a three-month short-selling ban that began in August after the index saw heavy losses.

Speaking at a news conference in Seoul Monday, the president of the Korea Stock Exchange, Kim Jin-gyu, blamed short sellers - who essentially gamble that prices will fall - for accelerating earlier market drops.

Kim says it is essential to halt short selling when there is such volatility. He says when the market stabilizes, then the ban will be lifted.

But Stephen Edge, who heads the electronic trading resource web site Asia ETrading, says the short selling ban does not make sense.

“Taking out the ability to short or take a side on the market isn't what the role of the exchange is meant to be," he said. "You also eliminate certain investors from the market, as well. So, in effect, you increase the volatility and there's less securities to trade at fair price. So it skews the market negatively and is really not in the best interest of the overall market.”

South Korea’s Financial Services Commission, on August 9th, extended a ban on short selling on financial industry stocks to cover all domestically traded shares. It announced the prohibition would remain in effect until November 9. But government and market officials say the exact date for lifting the ban will depend on market conditions.

The last time South Korean authorities banned short selling was from October 2008 until the beginning of June 2009.