Tuesday, March 18, 2008

Asian stocks tumble following news of Bear Stearns buyout

Asian stocks tumble following news of Bear Stearns buyout
Monday, March 17, 2008 The Associated Press

Asian stocks plunged and the dollar sank Monday after JPMorgan Chase said it would buy troubled U.S. investment bank Bear Stearns, signalling to investors the depths of the credit crisis.

Oil prices hit a record in Asian trading and U.S. stock index futures were down sharply, suggesting Wall Street would open lower Monday after sinking Friday.

JPMorgan said Sunday it would acquire Bear Stearns for $236.2 million — or $2 a share — in a deal that represents a stunning collapse for one of the world's largest investment banks.

The buyout was aimed at averting a bankruptcy and a spreading crisis of confidence in the global financial system sparked by defaults in the U.S. subprime mortgage market.

But to Asian investors the move suggested the credit woes are far from over and fanned worries that other big American banks are facing serious troubles.

"There is persistent credit uncertainty. Market players have been repeatedly let down, which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

"Just buying an investment bank does not solve the problem," he said. "Markets are prodding [the U.S. government] to inject public funds."

News of the acquisition of Bear Stearns stunned investors just before markets opened in Tokyo and Seoul. Both fell sharply before paring some losses in afternoon trading.

Japan's benchmark 225 index sank 3.7 per cent to close at 11,787.51 points, its lowest in more than 2½ years. In Seoul, the Korea Stock Price Index fell 1.6 per cent to 1,574.44 after sagging as much as 3.9 per cent.

Hong Kong's Hang Seng index was down 3.8 per cent at 21,377.45 after plunging as much as 5.4 per cent.

Across the Asia-Pacific region, all major stock indexes were down, including markets in Australia, China, Indonesia and the Philippines. India's Sensex dropped 3.8 per cent in morning trading.

"We are worried" about what comes next, Shim Jae-youb, a strategist at Meritz Securities in Seoul, said of concerns that other banks may collapse.

Shim said investors were on guard ahead of the release of quarterly earnings reports from big U.S. investment banks this week, including Lehman Brothers Holdings Inc., Goldman Sachs Group Inc. and Morgan Stanley. Bear Stearns had been scheduled to report its results Monday, though it wasn't clear if it would go ahead with that plan.


Jay and Gar said...

I found your March 12th, article very interesting and I appreciate you actually taking the time to write instead of just looking for information (like myself). My girlfriend and I are currently teaching in South Korea and are doing our absoulte best to save as much money as possible. We have been here for about two and a half months now and are finding that some things are cheaper here than they are back home (Canada) and other things are more expensive so we take that research into account when buying groceries as well as everything else we buy.
The only problem that we have run into at this point is that we are getting killed on the exchange rate. When we got here the exchange was about 917 won to the Canadian dollar and it has gotten progressively worse over the last couple of months and now I looked this morning and the exchange is an astounding 1029 won to the Canadian dollar. We are saving about 3 million won between the two of us monthly but that is become less and less as each day passes with the exchange rate going the way that it is. I was wondering if you have any advice for people who are in our situation? We would really appreciate some guidance.
Thanks very much in advance!

Daniel Costello said...

Wow! Glowing praise! Very much appreciated.

As for the current exchange values, unless you are paying off debts at home, I would consider keeping it here in a term deposit hovering around 5% annually depending on your bank and also depending on how long you plan to stay here.

My best buddy suggests that the current exchange rates may be a result of dividend season at Korean stock exchanges with foreign investors converting their gains to US dollars. It is a periodic annual event at this time of year which coincides with the US sub-prime correction.

The Korean Central Bank is well endowed with piles of currency reserves if need be.

It is not 1997.

So depending on your time in country you might like to locally invest in the interest of waiting out the current exhange rates.