Three Concerns Take Toll on Asian Stock Markets

Three simultaneous concerns caused stock prices in Asia to fall on Monday. The global financial market is being affected by concerns regarding the U.S. sub-prime mortgage crisis, the yen carry trade (borrowing low-interest yen to invest in high-rate assets of the U.S. and other countries) liquidation, and a Chinese economic slow down.

The KOSPI closed the market at 1,923.42 yesterday, down 67.05 points (3.37%) from the previous trading day. The magnitude of the fall was the 8th largest in the history of the KOSPI. The KOSDAQ wrapped up the market at 754.73, down 24.31 points (3.12%). Japan’s stock index the NIKKEI fell 15,197.09 yen, down 386.33 points, or 2.48 per cent, from the previous trading day. The average NIKKEI stock price fell to a new low of 15,000 yen since July of 2006.

The Shanghai Composite Index closed the market at 5,187.74, down by 127.81 points, or 2.40%. During the day, dumping of shares took place. Major Asian economies experienced a Black Monday phenomenon as Hong Kong`s Hang Seng index (-3.88%) and Taiwan`s Weighted index (-3.34%) also took nose-dives.

Due to concerns about yen carry trade liquidation, the yen-dollar exchange rate hit its record-high in a year and six months.

Dollar-yen exchange at the foreign exchange market in Tokyo traded in the 110-yen range against the dollar, which means the value of the yen has dropped more than two yen per dollar from the previous week. On November 10, the People’s Bank of China announced on November 10 that it was raising its cash reserve ratio by a 0.5% to a record-high of 13.5% starting on November 26, signaling a tightening of China’s currency.