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Global stock market slump spills over into Asia

News that the US, Eurozone, Japanese and other central banks had pumped massive amounts of cash into the financial system only appeared to add to the sense of nervousness on global markets about the US mortgage market troubles.

Investors fear that the US housing woes might eventually affect global economic growth if funds for business dry up although analysts said that so far the fallout appeared to be limited.

Markets opened sharply lower in Tokyo, Sydney, Hong Kong and elsewhere around the region after heavy losses Thursday on US and European bourses.

Growing jitters about a potential credit crunch prompted a flight to safety that hit stocks and lifted the yen as players shunned risky bets.

“Selling pressure was strong as the market fears that more funds or financial institutions may disclose problems related to US subprime mortgages,” said Conita Hung, head of research at Delta Asia Securities in Hong Kong.

Wall Street lost nearly three percent overnight as investors panicked on news that French bank BNP Paribas was freezing three funds that had exposure to US subprime mortgages as liquidity in the market dried up.

The dollar gained as it benefited from its status as a safe haven in times of financial instability, although not against the yen which was also higher as players unwound risky carry trades funded by selling the Japanese currency.

News that the European Central Bank pumped a record 94.8 billion euros (130.2 billion dollars) into the eurozone banking sector to help lenders shaken by the US subprime mortgage crisis spooked investors.

The US, Japanese and Australian central banks also provided added funds to the financial system in an effort to calm fears about a credit crunch.

“As private sector banks, in a time of uncertainty, set aside more funds for their own funding needs, we are seeing a shortage of liquidity in the money markets,” said Societe Generale’s chief Asia economist, Glenn Maguire.

He said there was a risk of a vicious circle of falling equity markets, widening credit spreads and a drop in the level of funds offered to money markets, which could ultimately force central banks to cut interest rates.

“But I don’t think we’re at that stage yet,” he added.

Elsewhere around Asia, shares dropped 2.28 percent in Bangkok, 3.34 percent in Singapore, 2.8 percent in Manila and a more modest 0.62 percent in Shanghai, where a market slump triggered a heavy selloff in February. Hong Kong was off nearly 3.0 percent.

“The falls we’ve seen on Wall Street and Asia are consistent with what we saw on February 27 when the Asian equity markets plummeted on the back of China (problems) and we have seen markets recover from that,” noted Maguire.

But he added: “We need to see confidence stabilise in the banking sector and the financial markets first before we see things start to improve.”

Analysts say the current crisis stems from problems in the US subprime mortgage market which has attracted investment funds lured by the prospect of quick profits by buying securities backed by home loans to people with risky credit histories.

A housing market slump and rising interest rates have left many subprime borrowers struggling to meet repayments, resulting in many banks and funds with exposure to the sector facing the risk of heavy losses.

In Sydney, EL & C Baillieu Stockbroking director Richard Morrow warned that until such concerns ease, further market turbulence could be expected.

“We’re going to get extreme volatility until this subprime thing is somehow massaged away,” he said.