Asia markets hit by US financial uncertainty
Updated
Share prices have fallen dramatically across Asia as the global credit crisis worsens.
Presenter: Karon Snowdon
Speaker: Henry Paulson, US Treasury Secretary, Takuji Okubo, Chief Economist with Merrill Lynch in Tokyo, Michael Heffernan, Austrock Securities analyst
SNOWDON: The emergency Sunday interest rate cut by the US central bank plus its financial support for the takeover of Bear Sterns by JP Morgan underlines the seriousness of the credit crisis. Its eroding confidence in not just the dollar but financial stocks around the world.
Even so US Treasury Secretary, Henry Paulson, has tried in the last few days to head off the avalanche with reassurances.
PAULSON: Our focus, our priority, number one priority is the stability of our financial system, the stability of our financial markets, orderly markets.
SNOWDON: Bear Sterns is or was America's fifth largest bank. Its been swallowed by its giant competitor, JP Morgan for 240 million dollars, a fraction of its previous value after disclosing its exposure to the sub-prime mess.
JP Morgan will pay just two dollars a share for stock worth more than 150 dollars a year ago.
The involvement of the Federal Reserve recalls actions more typical of depression era bailouts and is clearly aimed at stemming panic in financial markets.
But on Monday's share market...bank share prices fell by between five and six per cent from Sydney to Tokyo and some currencies weakened.
The yen however was trading at a 12 year high against the US dollar.
Japan's Finance Minister says at less than 97 yen, the dollar is too low, sparking speculation the Bank of Japan might intervene in the currency market.
Takuji Okubo Chief Economist with Merrill Lynch in Tokyo believes that wont happen and any central bank support of the dollar would be ineffective.
OKUBO: This is dollar weakness rather than yen strength and it would be hard for BOJ to actually move the market because they have to spend in the or of 20 or 30 trillion yen so I don't think they are ready to do that.
SNOWDON: The last time the BOJ intervened was in 2003. Then it spent around 34 trillion yen, about 300 billion US dollars in today's terms to strengthen the dollar.
The worry about the strong yen is that it will cut into the profits of export companies and the shares of major Japanese exporters like Sony, Toyota and Canon were hit hard on the share market.
Plus fears the US credit crisis is worsening, also infected Australia's banking sector which felt the full brunt of market jitters Monday.
The share prices of the big four banks lost between five and six per cent.
Which doesn't make much sense to Michael Heffernan, from Austock Securities.
HEFFERNAN: Well when you consider that banks such as the Commonwealth Banks are down around 30 per cent compared where they were just a few weeks ago and that applies to the other major banks as well you'd have to say the banks, which are paying dividend yields of around 7 per cent, are marvellous value.
SNOWDON: Markets are bracing for further hits once the US Fed again cuts its key interest rate this week - by an expected half a percentage point at least.
That's raising concern that Japan's improving economy might return to its long slumber. But Takuji Okubo is optimistic despite the 20 per cent yen appreciation over recent months.
OKUBO: Starting to worry about a recession in Japan just because the exchange rate is rising, I think is misplaced.
