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Sharemarkets across Asia plunged yesterday as frantic investors dumped stocks following massive losses on Wall Street and on growing fears of a deep global recession.
In Japan the benchmark Nikkei 225 index was down 9.6 per cent at 8276 in by the close after falling by as much as 11 per cent earlier in the day. The sharp falls prompted the Tokyo bourse and the Osaka Securities Exchange to briefly suspend some futures and options trading during the morning.
"Selling is unstoppable in New York and Tokyo," said Yutaka Miura, senior strategist at Shinko Securities. "Investors were gripped by fear."
The cost of protection against defaults in Asian sovereign and corporate debt soared to record highs yesterday amid fears the financial crisis could soon reach the region, traders said.
"There's a general consensus that Asia is in better shape. But that doesn't mean it won't be affected. Clearly once American consumers start to scale back and then in Europe, that's going to affect Asia," said Adil Chaudhry, head of regional credit markets for Scotiabank in Singapore.
There is considerable trepidation about how Wall St will trade overnight after an avalanche of selling took the Dow down 678.91 points, or 7.33 per cent, to 8579.19 on Thursday.
New Zealand's NZX-50 fell on opening and ended up losing 139 points or nearly 5 per cent, as its biggest one day loss since the 1987 crash dragged the market back to its lowest point since 2004.
There were only nine rises on the market and 94 falls.
Across Asia brokers asked how low markets could go with the Japanese market down more than 11 per cent, the Philippines market down 8.3 per cent and Hong Kong market down 7.7 per cent during New Zealand's trading day. The Australian market closed down 8.34 per cent.
Accelerating the pessimism were insolvencies in the insurance and real estate sectors that weakened confidence in whether Japan's economy would weather the global financial crisis relatively unscathed.
Yamato Life Insurance went bankrupt on Friday, becoming the first major Japanese financial company to collapse on the fallout from the US credit crisis. On Thursday, New City Investment Corp's bankruptcy filing made it Japan's first real-estate investment trust to fail.
Yesterday's developments left individual investors in Tokyo shellshocked.
Kenji Akasaka, 69, president of a local printing company, said he had never seen it this bad in the 40 years he has traded stocks. He said he invests mainly in blue-chips including Toyota and Nintendo - both of which have lost about half their value over the last year.
"I pray before I go to bed that the Dow will recover," said Akasaka, 69, as he scanned a monitor displaying the latest market levels.
But Japanese Economy Minister Kaoru Yosano sought to reassure the country even as markets tumbled.
"We need to make sure that we don't get pulled too much by global tides," Yosano said. "I hope Japan's investors make decisions calmly based on Japan's economic fundamentals."
On Thursday night, the Dow's 2271-point tumble over the last seven sessions was its steepest seven-day point drop ever. Its seven-day percentage decline of 20.9 per cent is the largest since the seven-day plunge ending October 26, 1987, when the Dow lost 23.8 per cent. That sell-off included Black Monday, the October 19, 1987 market crash that saw the Dow fall nearly 23 per cent in a single day.
Asia's falls come as finance ministers and central bankers from the Group of Seven industrialised nations prepared to meet later on Friday in Washington.
The US government is weighing guaranteeing billions of dollars in bank debt and temporarily insuring all US bank deposits, in a bid to unfreeze bank lending and staunch massive losses in equity markets, the Wall Street Journal reported on Friday.
The New York Times reported that US and British officials were converging on a similar blueprint to stem financial chaos involving injections of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans.
In New Zealand John Rowley, head of Macquarie Financial Services Group NZ, said Wall St's falls were "just insane".
"If you woke up at 6am the Dow was just down 1 per cent, but it ended up a disaster."
Thirty-year market veteran Kevin Rendell of Gould Steele and Co said while the 1987 crash was characterised by a massive sell-off of stocks with little or no fundamental value, the stocks being hammered at present appeared sound on conventional valuation measurements.
"Depending on your earnings assumptions these companies look as though they're reasonable value. But having said that there's a hell of a lot out there that's unknown. The danger is we really can't get a fair grip on where future earnings are going.
"I've seen significant market downturns before. Ultimately you do come out of them, what you don't know is how long it will take and what the risks to the economy and corporate earnings are.
"The sharemarket is often a pendulum between fear and greed - unfortunately it's swung all the way across to fear."
A somewhat shell-shocked sounding Rob Mercer, Forsyth Barr's research manager, said: "I don't have the answers. What's going on at the moment is bigger than New Zealand but I still feel confident in our financial system and confident in the financials of our listed companies."
For the time being though, companies' fundamental valuations were not being considered, "there's too much uncertainty".
Once again, despite its sharp fall, at $98.36 million turnover the New Zealand market was not especially heavy, with brokers pointing out there were far more sellers than buyers.
"A lot of people are taking money off the table but there's not a lot of people there to replace them," said ABN Amro Craigs' head of research Mark Lister.
"Everyone's rushing for cash so any logic just goes out the door," said Rowley.
"You get to the stage where you think you just can't fight it, this is bigger than our little market. The one missing thing at the moment is simply confidence. Is the the world going to actually unravel further or not? Two weeks ago US$700 billion was going to fix it, but we've moved on and that was just a nice gesture that hasn't fixed it. Nothing has made a difference."
But he said New Zealand was holding up better than Australia and some of the country's solid stocks had only fallen 2 per cent, "so we're holding up reasonably well", he said.
Richard Boulton, managing director of Hamilton Hindin Greene, said the market was waiting for an event to stop it sliding, consolidate it and bring it back up. Now what that event is can sometimes "come out of left field, quite frankly".
- Jacqueline Smith and Agencies
