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Friday July 29, 2011

Most Asian markets down on US debt problem

By YVO E TA and JOH LOH starbiz@thestar.com.my PETALING JAYA: Market sentiment in Asia took a beating yesterday, tracking concerns in the advanced markets where in the United States, lawmakers are struggling to find a solution to the country's debt problem. At the close, most key Asian markets were down by an average of 0.5% each. At home, the 30-stock FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) managed to claw back some of its morning losses to finish 6 points, or 0.40%, lower to 1,551.91 after losing more than 11 points in the earlier morning session. The scary part of the story is the fact that markets have not priced in the US defaulting on its debt. Should the unthinkable happen next week, then a throw back to the chaos of 2008 would again become a reality, CMC Markets analyst Ben Le Brun told Singapore's Dow Jones.

Down market: A man walking past a stock market indicator board in Tokyo yesterday. The Nikkei Stock Average lost 145.84 points, or 1.45%, to close at 9,901.35 in line with other Asian markets. EPA

Essentially, should the United States fail to raise its borrowing limit before an Aug 2 deadline, it could default on its debts for the first time in history. On Wednesday it was reported that talks between policymakers on the matter had reached a stalemate. From now until a solution is found ... markets will remain jittery, Danny Wong, chief executive officer of Areca Capital said. Most stock markets around the world were climbing last week as a new help plan for Greece had eased some concerns that the other major debt crisis over in Europe, would get worse. But this US debt impasse has changed the whole equation. Unless the deadlock is broken, the risk on US sovereign credit will inevitably rise, MIDF said in a report issued this week. The first test of ratings on the US will be on Aug 4 when US$30bil in Treasury bills mature, it noted. That said, fund managers are expecting Asian financial markets to enjoy a positive impact from the US debt issues, more so if talks between US policymakers fail. While we acknowledge negative knee-jerk reactions on a near-term basis, we believe Asia ex Japan could eventually benefit from a stronger inflow of funds, strengthening their currencies against the US dollar and boosting financial markets, MIDF said. Malaysia is also poised to enjoy the positive effect, the research house said. Wong concurs, saying the spillover effect from the debt crisis in the United States would be positive for Malaysia as investors would look elsewhere to channel their funds. I am not overly concerned about any deep negative impact from the US crisis. However, if the United States goes into a recession, the global supply chain will be adversely affected, he said. MIDF noted that foreigners have been net buyers of Malaysian stocks in 15 out of the last 18 weeks

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Local institutions turned net buyers last week, the first time in six weeks, while retailers were net sellers in the week that just ended. 1995-2011 Star Publications (Malaysia) Bhd (Co No 10894-D)

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