Asian stock markets plunge amid fears of U.S. recession

Last Updated: Tuesday, January 22, 2008 | 8:59 AM ET
The Associated Press

Global stock markets extended their shakeout into a second day Tuesday, plunging amid fears that a possible U.S. recession will cause a worldwide economic slowdown.

The dramatic declines in Asia and Europe were expected to spread to Wall Street, where stock index futures were already down sharply hours before the trading day began.

Japan's Nikkei 225 index nosedived 5.7 per cent — its biggest percentage drop in nearly 10 years — to 12,573.05, a day after falling 3.9 per cent. Australia's benchmark index sank 7.1 per cent, its steepest slide in nearly 20 years. Hong Kong's Hang Seng index, which slumped 5.5 per cent Monday, was down 8.2 per cent in afternoon trading.

In China, the Shanghai Composite index lost 7.2 per cent to close at its lowest level since August.

Indian Finance Minister P. Chidambaram urged investors to remain calm after trading in Mumbai was halted for an hour when the stock market there fell 10 per cent within minutes of opening. The Mumbai Stock Exchange Sensitive Index ultimately finished down almost five per cent.

"There is no reason at all to allow the worries of the Western world to overwhelm us," Chidambaram said.

Investors across the region dumped shares in frenetic trading on worries that the U.S. economy, battered by a credit crisis and housing slump, will shrink in coming months, weakening demand for Asian exports.

Markets have been plunging amid pessimism about the ability of American authorities to prevent a recession. The U.S. Federal Reserve has indicated it will lower interest rates further, and U.S. President George W. Bush has proposed an economic stimulus package that includes $145 billion US in tax cuts, but investors around the world are doubtful the measures will lift the economy quickly.

"Unless we get some positive 'shock effects,' such as drastic measures from the U.S. government, there is almost no hope for a recovery in stocks," said Koji Takeuchi, senior economist at Mizuho Research Institute in Tokyo.

U.S. markets were closed Monday for a holiday commemorating civil rights leader Martin Luther King Jr. But Wall Street future prices were down sharply, portending a plunge when trading begins at 9:30 a.m. ET.

Noritsugu Hirakawa, who monitors stock trading at Okasan Securities Co. in Tokyo, said investors were spooked by the drastic falls on Chinese and Indian markets — the two emerging economies that are viewed as capable of sustaining global growth even as the U.S. economy sputters.

"The end to the slides in Asian stocks is nowhere in sight," he said. "There is even speculation that China may be exposed to the U.S. subprime mortgage crisis."

In Europe on Monday, investors also dumped stocks, sending Britain's benchmark FTSE-100 down 5.5 per cent and France's CAC-40 index sliding 6.8 per cent. Germany's blue-chip DAX 30 plunged 7.2 per cent to 6,790.19.

That sell-off continued Tuesday throughout Asia, with benchmark indices in South Korea, Taiwan, Singapore and the Philippines all falling more than four per cent. Indonesia's market sank 8.5 per cent.

Asian markets have been in a downward spiral for most of January. Since the start of the year, Japan's Nikkei index has tumbled nearly 18 per cent, while the Hang Seng is down a stunning 21 per cent.

Even the usually upbeat Japanese Economy Minister Hiroko Ota acknowledged that threats were growing.

"We must take the approach of working together with other nations on this," she said on nationally televised news.

From CBCNews