Asian equity markets plummeted again at the start of trading Tuesday, amplifying fears of an imminent repeat of the 2008 global financial crisis. Despite early declines that were seen as reactions to Monday’s Wall Street sell off, Asian stocks managed to recover some of their huge losses by the time the exchanges closed.
Analysts are saying the Asian sell-off defies market fundamentals. But their assessment has done little to stem what is described as panic selling, especially among the region’s individual investors.
South Korea’s key stock index plunged as much as 10 percent. The Korea Stock Exchange briefly suspended programmed trading to halt the free fall. At the close, the benchmark KOSPI was off more than 3.6 percent. Banking stocks were especially hard hit.
Trading was totally halted for a time on the small caps Kosdaq exchange when the index dropped below ten percent.
Lee Jong-woo, head of research at Solomon Investment and Securities, says foreign investors are selling their holdings in South Korea, while domestic pensions funds, insurance companies and official foundations, at the encouragement of the government, are the major players purchasing stocks.
Lee cautions individual investors from selling into the market panic, contending stock prices here are already very low and it is best to hold on because shares values will rise again in the fourth quarter of the year.
Media reports quote officials of the Korea Exchange saying a ban on all short-selling is under consideration if the situation further deteriorates.
A steep plunge was also seen in Hong Kong where the Hang Seng index finished the day five-and-two-thirds of a percent lower.
Japan’s benchmark index, the Nikkei, closed off one-and-two-thirds a percent after steep losses earlier in the day.
This is its lowest finish since mid-March, in the days just after the disastrous earthquake and tsunami which also triggered a meltdown of some reactors at the Fukushima-1 nuclear power plant.
Amid the dramatic selling in Tokyo, the Finance Minister, Yoshihiko Noda, emerged to deny media reports he would be resigning later in the day. There is speculation Noda plans to run in an upcoming Democratic Party election to succeed Prime Minister Naoto Kan.
Noda told reporters now is not the time for him to make any political moves.
The finance minister says he is not quitting today as it is a crucial moment for the markets and he needs to do his job. He says he is watching the equity and currency markets with a sense of alarm. Noda adds economic steps are also needed to stem the rise of the Japanese currency.
When the U.S. dollar saw a sharp but brief spike against the yen Tuesday, there was speculation among currency traders that Japanese authorities had again intervened and perhaps even coordinated buying among the Group of Seven nations. Nothing has been confirmed and the dollar quickly erased the momentary gains, continuing its decline against the yen and other currencies.
Meanwhile, gold reached fresh record highs in Asia.
The director of the retail Jongro Gold Exchange in downtown Seoul, Yoon Jung-hoon, says demand far exceeds the store’s inventory.
Yoon says he has never seen a day like this. The phones were ringing off the hook before noon with so many callers wanting to immediately purchase gold. But he says he cannot keep gold on hand to meet the demand.
Oil contracts also continued to sink in Asian trading, with various types of crude falling between four and seven percent.
Analysts say oil prices have been dropping since Friday’s unprecedented downgrade of U.S. long-term sovereign debt. They say higher inflation in China (the world’s largest energy consumer) and stock market sell-offs are also putting pressure on oil prices.