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    Awaiting Wall Street's Open, Asia Markets Plunge
    By Keith Bradsher
    The New York Times

    Tuesday 22 January 2008

    Hong Kong - Stock markets across Asia plunged even farther and faster on Tuesday than on Monday - while stock markets in Europe also opened with further losses on Tuesday - as anxious sellers dumped huge numbers of shares on worries that an economic slowdown in the United States could drag down growth around the world.

    The European stock markets later recovered partially and showed only modest declines by late morning trading.

    A decade after a credit crisis in Southeast Asia triggered an "Asian contagion" of stock market declines around the world, the credit crisis in the United States is now producing an "American contagion" to which no stock market seems immune.

    Heavy selling hit each Asian and European stock market as soon as it opened. Some of Asia's easternmost exchanges, which had closed on Monday before the sharpest declines occurred in India and then Europe, suffered particularly steep drops.

    The Japanese stock market dropped 5.7 percent, for the worst two-day loss in 17 years, while the Australian stock market tumbled 7.1 percent, its worst single-day loss in nearly two decades. The Shanghai market lost 7.2 percent while the Hang Seng index in Hong Kong plummeted 8.7 percent.

    "At this stage, you can say there is panic selling in the market," said Kwong Man Bun, the chief operating officer of KGI Asia Ltd., a large Asian futures broker. "We don't think the Hang Seng index has found its bottom yet; the index will continue to go down and will only find its bottom when external markets - namely, the U.S. market - stabilize."

    European stock indexes opened with losses of 2 to 5 percent, extending a steep slump that pushed some indexes down more than 7 percent on Monday. But most European indices had recovered to show losses of less than 1 percent, or even tiny gains, by late morning.

    One of the biggest losers on Monday and again on Tuesday was India. Trading on the Bombay Stock Exchange was halted for an hour on Tuesday after the Sensex index dropped 11.5 percent shortly after the opening.

    Finance Minister P. Chidambaram of India tried to soothe markets with a news conference. "My advice to investors is to stay calm," he said, adding that India's economy was slated to grow 9 percent this year and 8.5 percent next year.

    Investors did not immediately heed his words, though, and when the market reopened the Sensex fell to more than 12 percent below Monday's close. But the market rebounded sharply in the afternoon to show a loss of 5 percent.

    Across the region, government officials and economists alike blamed the selling on worries about the United States economy, while expressing lingering hopes that the region's economies would not suffer quite as much in the months ahead as the American economy. Markets in the United States were closed on Monday for the observance of Martin Luther King's Birthday, but will open Tuesday morning.

    "The prospects for ongoing growth in Asia and the developing markets are assisting us to withstand the fallout occurring elsewhere," said Wayne Swan, Australia's federal treasurer. He blamed the broader market decline on continued worries about the full scope of problems stemming from losses on subprime mortgages in the United States.

    But some economists are much gloomier, and question whether Asia's fortunes have really "decoupled" from the United States at all.

    "Asian, including Southeast Asian, economies, will slow as a result of weakening economic growth in the U.S. and Europe," said Yiping Huang, the head of Asia and Pacific economic and market analysis at Citigroup.

    He added that he did not believe that Asian economies had decoupled at all from the American economy, because so many companies now have closely integrated operations around the world.

    The breadth of the selling on Tuesday reflected worries that Asian economies would not escape unscathed. While trade within Asia has expanded rapidly over the past decade, much of it still consists of raw materials and components that are shipped among countries before final assembly, usually in China, and then exported to the United States or the European Union.

    While the European Union overtook the United States as China's largest export market early last year, there have been growing signs this month of a possible economic slowdown as well in Europe. European banks have also sustained heavy losses on mortgage-backed securities from the United States, and the regions exports are starting to face difficulty from the strength of the euro.

    Some economists maintain that China, with 11.5 percent economic growth, actually needs the slower pace of exports that an American economic slowdown would bring. Weaker exports would help the Chinese economy avoid overheating, they contend, and prevent further increases in inflation, which hit 6.9 percent at the consumer level in November.

    "A U.S. recession is good for the Chinese economy," Qing Wang, an economist in the Hong Kong office of Morgan Stanley, said in a telephone interview after the close of most Asian trading on Tuesday.

    Mr. Huang at Citigroup was more pessimistic about the effect on China of slower exports. "Sharp slowing of external demand could in fact lead to overcapacity, margin squeeze and deflationary pressures in China," he said in an e-mail message.

    For the rest of Asia, an American recession could pose a serious problem - particularly southeast Asia, which has never fully recovered from the Asian financial crisis in 1997 and 1998. Indonesia's stock market in Jakarta plunged 9.22 percent on Tuesday.

    Stockbrokers said that investors were selling heavily for many reasons. Some individuals had to raise money to meet margin calls because they had purchased shares with borrowed money, while some fund managers dumped shares to raise money to meet redemption requests from their investors, said Peter Lai, the securities sales director in the Hong Kong office of DBS Vickers, an Asian retail brokerage.

    Fears of what will happen when American stock markets open for trading on Tuesday contributed to the weakness in Asia,

    "With the U.S. markets out, there was just nothing to act as a brake on the Japanese market, " said Kazunori Takahashi, head of equity market research at Daiwa Securities SMBC in Tokyo. "The market just spiraled downwards."

    Futures contracts traded in Asia suggested growing expectations through the day that losses in New York will be severe.

    "Definitely this is detrimental to the sentiment of the whole market," Mr. Lai said.

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    Contributing reporting were Tim Johnston in Sydney, Heather Timmons in New Delhi and Martin Foster in Tokyo.