Posted on 08/15/2007 3:39:08 AM PDT by TigerLikesRooster
(AFX UK Focus) 2007-08-15 10:22 GMT: Hong Kong shares close sharply lower as carry-trades unwound - UPDATE
HONG KONG (XFN-ASIA) - Share prices closed sharply lower as growing risk aversion prompted global investors to unwind yen carry-trades, with the Japanese currency moving to a four-month high against the US dollar in Asian trade today.
Dealers said hedge funds squeezed by problems in the US sub-prime and credit markets are being forced to dump stocks to raise funds to pay back low-interest bearing yen loans, which were used to invest in risky assets globally.
Revelations that more hedge funds are being caught up in credit market troubles also led many investors to sell down portfolios, causing heavy losses across the region.
The Hang Seng Index closed down 631.60 points or 2.87 pct at 21,375.72, off a low of 21,303.35 and high of 21,637.50.
Turnover was 77.81 bln hkd.
"The main trigger for today's sharp fall was mounting fear that more hedge funds will get hit by the US sub-prime mortgage problems and the yen carrytrade," said Eugene Law, head of research at Celestial Asia Securities Holdings.
"Faced with redemptions and the need to cover up losses, hedge funds are dumping stocks to raise monies to pay back yen loans which were used to invest in risky assets," he said.
Regular newsflow about global financial institutions and hedge funds getting squeezed by US sub-prime market woes and credit crunch are severely hurting investor sentiment, Law said.
He said investors are uncertain when volatility on US bourses will subside and the extent of problems in the sub-prime loans market.
However, he said he disagrees with a South Korean official's warning that the yen-carry trade could cause an international financial turbulence similar to the 1997-98 Asian financial crisis.
"Central banks around the region should know what to do with the unwinding of carry trades because this factor affected markets in February-March this year," Law said.
South Korean Finance Minister Kwon O-Kyu has warned that excessive yen-carry trades are "one of the fundamental factors that have caused instability in global financial markets."
Large-caps were mostly lower, with HSBC down 2.07 hkd or 1.48 pct at 137.90 and Hutchison Whampoa falling 1.50 hkd or 1.91 pct at 76.95.
Stock exchange opeartor HKEx fell 5.40 hkd or 4.31 pct to 120 despite reporting that its first-half net profit surged 110 pct year-on-year to 2.33 bln hkd on robust market activity.
China Mobile, which will report interim earnings tomorrow, was down 2.30 hkd or 2.66 pct at 84.15.
Among China financials, ICBC was down 0.16 hkd or 3.39 pct at 4.56, Bank of Communications fell 0.16 hkd or 1.92 pct at 8.16, Bank of China lost 0.09 hkd or 2.37 pct at 3.71 and China Life shed 0.75 hkd or 2.42 pct at 30.20.
The Hang Seng China Enterprises Index lost 409.40 points or 3.3 pct at 11,989.16.
Among local banking stocks, Hang Seng Bank fell 1.90 hkd or 1.60 pct at 116.90, Bank of East Asia was down 0.60 hkd or 1.42 pct at 41.65 and BOC Hong Kong down 0.60 hkd or 3.12 pct at 18.62.
China Shipping Development fell 0.50 hkd or 2.58 pct at 18.90 despite announcing that its net profit for the first half of the year rose 72.5 pct year-on-year to 2.23 bln yuan under Chinese accounting standards,
Huaneng Power International fell 0.19 hkd or 2.34 pct at 7.93, despite 40 pct frise in first-half net profit to 2.94 bln yuan.
Properties were also sharply lower, with the sectoral sub-index losing 771.43 points or 3.02 pct at 24,813.64.
Cheung Kong was down 2.90 hkd or 2.76 pct at 102.30, Henderson Land down 1.60 hkd or 3.01 pct at 51.55, Sun Hung Kai down 2.50 hkd or 2.61 pct at 93.35 and Sino Land fell 0.66 hkd or 3.92 pct to 16.18.
Hang Lung Properties was down 1.0 hkd or 3.97 pct at 24.20 despite news that its year to June net profit rose 45 pct year-on-year to 6.37 bln hkd.
Hang Lung Group lost 0.35 hkd or 1.05 pct at 33 after announcing a year to June net profit of 4.79 bln hkd, against 2.83 bln a year earlier.
Hysan Development fell 0.20 hkd or 1.02 pct to 19.36 after reporting a 9.6 pct year-on-year drop in first-half net profit to 1.37 bln hkd.
Li & Fung was down 1.20 hkd or 4.59 pct at 24.95. The company reported after market close a first-half to June net profit of 1.05 bln hkd against 764 mln a year earlier.
Wharf Holdings was down 0.25 hkd or 0.83 pct at 29.95 ahead of its announcement that its first-half net profit fell to 4.43 bln hkd from 6.26 bln a year earlier.
Elsewhere, China Unicom was down 0.60 hkd or 4.7 pct at 12.16 and PetroChina gave up 0.28 hkd or 2.64 pct at 10.32.
Ping!
Tue, Aug 14 2007, 06:34 GMT
SEOUL (Thomson Financial) - South Korea’s finance minister warned Tuesday yen-carry trade could cause international financial turmoil similar to the 1997/98 East Asian financial crisis.
Yen carry trades, or the borrowing of yen at low interest rates in Japan to invest in higher-yielding currencies and assets elsewhere, has risen sharply in recent months, although it eased back slightly over the past few days amid increased risk aversion by investors in the wake of the subprime mortgage lending woes in the US.
“Excessive yen-carry trades are one of the fundamental factors that have caused instability in global financial markets,” Kwon O-Kyu said in a message to his staff.
He urged international policymakers actively to tackle the issue to avoid any risk of a financial crisis.
“If the carry trades rise too much, the trades could have a big influence on a country’s economy,” Kwon said.
“Big confusion such as that seen in the Asian financial crisis in 1997 could emerge if investors scrap trades suddenly.”
How are the European markets doing right now?
They're all down; most are down between .8% and 2% on the day so far.
Thanks. Looks like another bad day shaping up.
http://www.bloomberg.com/markets/stocks/wei.html
Europe/Africa/Middle East
INDEX VALUE CHANGE %CHANGE TIME DJ STOXX 50 € PR 3,632.87 -35.16 -0.96% 06:37
FTSE 100 INDEX 6,070.00 -73.50 -1.20% 06:36
CAC 40 INDEX 5,402.77 -75.89 -1.39% 06:51
DAX INDEX 7,363.42 -61.65 -0.83% 06:36
IBEX 35 INDEX 14,422.40 -130.70 -0.90% 06:36
MILAN MIB30 INDEX 39,504.00 -322.00 -0.81% 08/14
AMSTERDAM EXCHANGES INDX 503.81 -4.62 -0.91% 06:52
OMX STOCKHOLM 30 INDEX 1,175.10 -18.67 -1.56% 06:51
SWISS MARKET INDEX 8,546.45 -2.88 -0.03% 06:51
You were faster than a greased petunia.
Tolerating Japan’s negative real interest rates and the carry trade are the biggest cause of the current financial unpleasantness after the Federal Reserve. Unwinding the Yen carry trade rapidly and completely is much in the Republic of Korea’s long term interest.
I agree.
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