Global Financial Crisis

Thai stocks posted a modest rebound yesterday, gaining 1.55% as most Asian equity markets closed higher after central banks across the world slashed interest rates and pumped tens of billions of dollars into the money markets to break the current crisis.

The Stock Exchange of Thailand index closed just off the 500-point barrier, ending trade at 499.99, up 7.65, in trade worth 20 billion baht. The index had fallen to a low of 473.94 points before rebounding in afternoon trade.

Energy stocks rose 4.31%, banks gained 2.06% and tech stocks dropped 1.55%.

But analysts cautioned that the gains, which followed four straight days of losses, were likely to be short-lived as the global economy looked more likely to fall into a recession going into 2009.

The Securities and Exchange Commission, meanwhile, directed local brokers to report their financial positions and margin lending activity on a daily basis.

Brokers must detail the status of their client cash, margin and futures accounts, including data on customer settlement defaults or accounts for which collateral has fallen under limits.

The SEC also wants brokers to disclose details about their proprietary trading portfolios, including holdings in stocks, bonds and derivative instruments.

SEC officials insist that the financial status of the local brokerage system remains sound, with capital funds comfortably in excess of minimum requirements.

But the rapid decline in the market - down 26% over the past month and over 42% since January - has raised potential risks as client asset portfolios have fallen sharply in value.

Prasit Srisuwan, the chief executive officer of BFIT Securities, said brokers were aware of the rising clearing and settlement risks in the current environment.

He said BFIT Securities had outstanding margin loans of just 250 million baht, out of credit lines of one billion and capital funds of 528 million.

BFIT Securities and other brokers impose strict rules on margin trading, with clients required to post additional collateral if their portfolio value falls with share prices. Heavy declines in values can lead to forced selling of shares to limit losses and potential credit risks.

Market regulators and participants plan to hold talks today to discuss the current global crisis.

SET president Patareeya Benjapolchai said the meetings would include representatives of the Association of Securities Companies, the Securities Analysts Association, the Association of Investment Management Companies and the Foreign Brokers Association.

She said that margin-forced sales and short-selling were not major problems for the SET. Outstanding margin loans for the system were just over 20 billion baht, a relatively small figure when compared with the overall size of the market. Forced selling activity accounted for just 0.6% of total trading volume.

Short-selling, or securities borrowing and lending, also represented a minor proportion of total trading.

Some exchanges, including the New York Stock Exchange, have over the past three weeks imposed short-selling bans on certain stocks, particularly financial institutions, to help curb share volatility as prices have fallen on panic sales by investors. Other markets, including Indonesia, France and Russia, have relied on circuit-breakers and temporary trading suspensions to help reduce volatility.

While analysts caution that short-term trends remain bearish, the recent slide in share prices means many solid stocks are trading at bargain prices.

Robert Penaloza, the chief executive officer for Aberdeen Asset Management, said he saw huge long-term opportunity for not just the Thai stock market, but global capital markets in general.

“Many stocks now are priced under their fundamental value,” he said, adding that for the near-term, market volatility was expected to remain high.

Reungvit Nandhabiwat, the secretary of the Thai Financial Planners Association, agreed.

For investors with a time horizon of less than one year, expect no real improvement in trends, he said.

“But you can start planning for medium- and long-term prospects. Over a four- to five-year period, you should see returns,” Mr Reungvit said.

Source: http://www.bangkokpost.com

Indian stocks fell sharply by nearly 1,000 points to a three-year low in the opening session of trading on Friday, registering a drop of 9%.

The benchmark Sensex fell below 10,400 points in early trade before making a partial recovery.

The crash also affected the rupee which fell to 49 against the US dollar.

Meanwhile, the Reserve Bank of India (RBI) has cut the cash reserve ratio for banks to 7.5% to help generate more cash in the banking system.

It could make more than $12bn of credit available in an effort to resolve the liquidity crunch, the BBC’s Prachi Pinglay in Mumbai (Bombay) says.

Traders say the market is responding to the global markets and the cut in the cash reserve ratio will help reduce the impact of the global crisis.

Some Indian traders fear that many foreign institutional investors, faced with increased problems at home and an unwillingness to take on extra risks, will sell their emerging market holdings and leave the market.

According to official figures, foreign funds have sold shares worth $879m (£445m) in the four days to Thursday, taking total outflow in 2008 to $4.8bn.

Some traders say the figures show that foreign investors are “queuing up to exit” the Indian market.

Source: http://www.bbc.co.uk

The People’s Bank of China cut rates for the second time in three weeks, reducing borrowing costs by over a quarter of a percentage point to 6.93pc.

Taiwan and South Korea followed suit today, reducing rates by 0.25pc points.

Australia slashed its borrowing rates earlier this week by one percentage point to 6pc. Japan is the only major Asian country to keep rates on hold at 0.5pc.

However, the Bank of Japan injected 2 trillion yen (£11.67 bn) into the money markets on today, adding emergency funds for a 17th straight business day.

In response, Japan’s Nikkei index was up 1.25pc by early afternoon in Tokyo, a day after suffering its biggest fall since the 1987 crash. In Hong Kong, share prices rose by 1.1pc, while the benchmark Shanghai Composite index gained 1.59pc. Singapore was up by nearly 1pc and Seoul added 0.2pc.

The mood remained tense, however, after disastrous losses across the region on Wednesday. The black mood continued in Australia, where the Sydney stock exchange fell 2.2pc, and Indonesia, where trading was suspended for the second day in a row.

Daisuke Uno, a market strategist at Sumitomo Mitsui Bank in Tokyo, said the interest rate cuts may not be enough to stem the panic, which is spreading from the West to Asia.

Central banks “had to take the action after watching the chain reaction of the market plunges, but a half-point cut was such a stingy move.”

There were more fears that a recession in the West would badly affect Asian exports. Steel mills in China have asked Mount Gibson Iron, a major Australian iron ore supplier, to delay some shipments, a move than sent the company’s shares down by 32pc.

Japan’s core machinery orders, a key measure of capital spending by the country’s companies, slid 14.5pc in August, the fastest drop in more than two years.

Japanese Prime Minister Taro Aso called for an additional economic stimulus package “very urgently” to shore up the world’s second-largest economy.

However, Toyota saw its share price rebound, rising 6.7pc after investors judged yesterday’s (weds) sell-off overdone. Toyota said its profits may be down by 40pc because of weak sales in the US.

The financial crisis has also presented China with the opportunity to snap up bankers with expertise in global capital markets. Domestic Chinese investment banks told state media that they would be on the hunt for staff who have been laid off in Wall Street or London.

Source: http://www.telegraph.co.uk