Asian Stocks Tumble on Recession Concerns; Nikkei 225 Plunges

By Patrick Rial and Chua Kong Ho
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Oct. 16 (Bloomberg) -- Asian stocks plummeted, driving the MSCI Asia Pacific Index down the most on record, on concern the global economy will sink into a recession and after Standard & Poor's said South Korean banks may fail to refinance debt.

MSCI's Asian index, which comprises the biggest stocks across the region from Australia to Japan, tumbled 8.5 percent to 87.04 at 7:18 p.m. in Tokyo, the largest drop since the measure was compiled in December 1987. Japan's Nikkei 225 Stock Average plunged 11 percent, the steepest loss since the crash of 1987. South Korea's Kospi Index fell 9.4 percent, the most since the 2001 terror attacks, and the won retreated as much as 12 percent.

Falling metal and oil prices dragged BHP Billiton Ltd. down 13 percent and Cnooc Ltd. 8.9 percent lower. While MSCI's Asian index is still up 1.2 percent this week after central bankers around the world announced a $2 trillion global bank rescue, the gauge has lost 45 percent this year as credit markets seized up and economies slowed.

``We're having a U-turn in perception,'' said Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., which oversees $15 billion in Asian assets. ``While remedial measures taken globally have been sufficient to arrest the financial crisis, concerns have quickly shifted to the economy. A synchronized global slowdown threatens a longer and deeper recession.''

Standard & Poor's 500 Index futures gained 0.8 percent, erasing earlier losses after UBS AG said it will raise more than $5 billion from the Swiss government. The S&P tumbled 9.1 percent yesterday, the biggest loss since 1987, after U.S. retail sales fell twice as much as economists estimated.

Sony, Sharp

Concern that U.S. consumers will buy fewer products from Asia drove Sony Corp., the maker of the PlayStation 3 game console, and Sharp Corp. down more than 10 percent. Hong Kong's Hang Seng Index declined 4.8 percent, paring an earlier drop of 8.9 percent, after Air China Ltd. forecast a loss.

Asian benchmark indexes are trading near lows reached last week, when MSCI's Asian gauge fell the most ever on concern the global credit crisis will increase company failures. Markets rebounded earlier this week after the U.S. Treasury said it will invest $250 billion in financial institutions and France, Germany, Spain, the Netherlands and Austria committed $1.8 trillion to guarantee bank loans and take stakes in lenders.

Japan's Prime Minister Taro Aso said today the U.S. bank rescue plan is ``insufficient'' and ``that's why markets are falling.'' Aso was speaking to lawmakers in parliament.

The Nikkei's drop today is the third time the measure has lost more than 9 percent in six trading sessions, and follows a 14 percent jump on Oct. 14.

The Kospi tumbled to its lowest close since June 2006, as S&P said it may cut credit ratings for Kookmin Bank, Woori Bank and five other financial companies. The cost of protecting South Korean debt from default rose.

Won Slumps

KB Financial Group Inc., the holding company for Kookmin Bank, slumped 15 percent to 43,400 won. Woori Finance Holdings Co., which controls Woori Bank, dropped 15 percent to 11,050 won.

The won, Asia's worst-performing currency this year, fell 9.7 percent to 1,373 per dollar at the 3 p.m. stock trading close, Seoul Money Brokerage Services Ltd. said. The currency's 32 percent slump this year threatens to increase the cost of financing dollar-denominated debt.

South Korea's money market rates rose to the highest since January 2001. The benchmark 91-day certificate of deposit rate increased 3 basis points to 6.08 percent, according to the 10:30 a.m. fixing by the Korea Securities Dealers Association.

Other Asian funding costs fell. The rate Australian banks charge each other for three-month loans dropped to 5.695 percent, compared with 7.49 percent on Sept. 19, four days after Lehman Brothers Holdings Inc. filed for bankruptcy. Japanese overnight commercial borrowing rates declined to a one-week low.

Metal, Oil

Commodities prices slumped on concern a global recession will slash demand for raw materials. Copper futures on the London Metal Exchange headed for the biggest two-day decline in more than 12 years. Crude oil fell for a third day, taking its retreat from the July record to more than 50 percent. Crude slid as much as 3.3 percent to $71.21 a barrel recently in New York.

BHP lost 13 percent to A$25.80. Rio Tinto Ltd., the world's third-largest mining company, fell 16 percent to A$66.01. Both plunged the most since October 1987. Rio said yesterday it will idle sections of its highest-cost aluminum plants as prices have slumped amid weakening demand. Cnooc, China's biggest offshore oil producer, slid 8.9 percent to HK$6.12.

``Market players are increasingly nervous that global economies will sink even further,'' Mitsushige Akino, who oversees about $468 million at Tokyo-based Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television.

`Harsh' Outlook

Sony fell 13 percent to 2,320 yen. Sharp, Japan's largest maker of liquid-crystal-display televisions, lost 11 percent to 790 yen. Toyota Motor Corp., the world's second-largest automaker, slumped 9.3 percent to 3,310 yen.

U.S. consumer purchases fell 1.2 percent in September, almost double analysts' estimates. The drop marked the third- straight monthly decline, the first time that's happened since comparable records began in 1992, U.S. Commerce Department figures showed.

``The American spending spree we've seen in the past few years has totally evaporated,'' said Yoshinori Nagano, a Tokyo- based senior strategist at Daiwa Asset Management Co., which manages $96 billion. ``The earnings outlook for auto manufacturers and electronics makers is particularly harsh.''

Samsung Electronics Co., the world's third-largest mobile- phone maker, lost 7.9 percent to 504,000 won. Merrill Lynch & Co. cut its rating on the stock to ``underperform'' from ``buy.''

Lotte Shopping Co., South Korea's biggest department-store chain, plunged 10 percent to 194,000 won after the country's department store sales fell for the first time in nine months in September.

Airlines Drop

Air China, the nation's largest international carrier, plunged 13 percent to HK$2.79, its biggest decline since January, after projecting a nine-month loss. Singapore Airlines Ltd., Asia's most profitable carrier, fell 4 percent to S$12.4 after saying traffic slipped in September, the first drop in more than three years.

The cost of protecting Asia-Pacific bonds from default increased, according to traders of credit-default swaps. The Markit iTraxx Australia index of credit-default swaps rose 27.5 basis points to 225 at 2:28 p.m. in Sydney, Citigroup Inc. data show. The iTraxx Japan climbed 23 basis points to 208, according to Morgan Stanley, and the investment-grade benchmark index for the rest of Asia advanced. Contracts on South Korean sovereign debt approached a record as the won slumped.

``Everybody's just very suspect of trading any emerging market or any name in Asia,'' said Mark McCarthy, a credit trader for ABN Amro Holding NV in Sydney.

Credit-default swaps pay the buyer face value in exchange for the underlying securities, or cash equivalent, if a borrower fails to adhere to its debt agreements.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg.net.