HONG KONG // Asian equities slid today after signs of a deepening global economic slump slammed stocks worldwide the previous day, driving benchmark US Treasury yields to their lowest since the 1950s. Adding to the gloom, the US economy was confirmed to have fallen into a recession nearly a year ago and the Federal Reserve chairman Ben Bernanke said the central bank is mulling extreme policy measures such as buying more government bonds to revive growth.
An array of reports showing manufacturing activity around the world contracted at the sharpest pace in a decade or more put focus on the pain the credit crisis has inflicted on companies and households. Safe-haven government bonds climbed, while oil prices fell to a three-and-a-half-year low on the dour outlook for global demand. But the yen slipped as some Japanese investors shifted funds into foreign assets.
The MSCI index of Asia-Pacific stocks outside Japan dropped 3.5 per cent, taking this year's losses to 57 per cent. Hong Kong's Hang Seng index fell five per cent and was among the hardest hit in the region. "The (US business cycle) committee's recession statement confirmed what people have long suspected but were not sure of, and combined with the US factory data, which confirms the gravity of the ongoing recession, stoked worries about how much longer the world's largest economy will be submerged in economic downturn," said Bae Sung-young, a market analyst at Hyundai Securities in Seoul.
Japan's Nikkei average shed 4.6 per cent as the yen's surge added to the pain for the country's big exporters, that have suffered a double-whammy from tumbling demand and currency strength shrinking the value of overseas earnings. The Reuters Tankan survey of confidence at big Japanese manufacturers posted its biggest one-month fall on record in November. US crude oil prices dropped more than US$1 a barrel to $48.25 a barrel, its lowest since May 2005, extending the previous session's falls.
Yesterday, the S&P 500 index tumbled 8.9 per cent, with investors set to ride out a tumultuous year on a rocky note. The yen surrendered some of its gains after bolting higher yesterday as Japanese investors took advantage of the rise to buy higher-yielding currencies for cheaper. The dollar edged up 0.4 per cent from late US trade to 93.60 yen, while the euro was a tad higher at 118.25 yen. The yen's fortunes remain closely tied to that of stocks due to its role in the carry trade using the low-yielding Japanese currency to buy higher-yielding currencies and other assets.
Safe-have government bonds climbed as investors sought a refuge from the latest flare-up of volatility. The yield on 10-year Japanese government bonds dropped 3.5 basis points to 1.365 per cent, taking them back near lows hit in October when the Nikkei plunged to a 26-year low. US Treasuries pushed up in Asia, with the benchmark 10-year note rising 5/32 in price to yield 2.710 per cent near a five-decade low of 2.650 per cent hit yesterday after Mr Bernanke said the Fed could start buying Treasuries and agencies.
The Fed is widely expected to cut rates later this month to 0.5 per cent, the lowest since the 1950s, and Mr Bernanke said lower rates are feasible but conventional policy is constrained. Long-term government bond yields have also dropped on mounting expectations inflation in major economies will turn into falling prices, or deflation, and the sharp drop in commodity prices. *Reuters