Tuesday, June 23, 2009

Asian Stocks Tumble On Economic Uncertainity

. Tuesday, June 23, 2009

By stockOzone team

The renewed caution about the precarious state of the global economy that began to stalk stock markets last week returned in full force in Asia on Tuesday, with key indexes in Japan, Australia and Hong Kong all slumping more than 3 percent.

The Kospi in South Korea shed 2.7 percent by late morning, the Straits Times in Singapore sagged 1.9 percent. Stocks in Taiwan fell 2 percent, and the market in mainland China fell 1.7 percent despite the relatively upbeat prospects for China's giant economy.

However, one bright spot in Hong Kong was Gome Electrical Appliances, one of the biggest Chinese retailers, which soared more than 100 percent after the U.S. private equity fund Bain Capital said it is taking a stake in the company. The stock had been suspended for the past seven months after its founder was detained by the Chinese authorities on corruption charges last November.

The falls in Asia echoed slumps in Europe and the United States on Monday as investors received a fresh reality check about the prospects of recovery in the form of growth forecast revisions from the World Bank. This included regional breakdowns of the World Bank's assumption for growth this year; its overall global forecast for a 2.9 percent contraction had already been publicized on June 11.

Asia had mostly taken the revisions in stride on Monday, but the World Bank's view that high-income countries like the United States and Europe would shrink as much as 4.2 percent this year provided a catalyst for fresh stock market falls in those areas.

Also on Monday, the Organization of Cooperation and Development added its voice of gloom about the state of the global economy, while the White House predicted that U.S. unemployment would hit 10 percent in the next few months.

While the assessments were not major surprises – economists have cautioned for months that the global economy remains in dire straits – the news combined to send the Dow Jones industrial average in New York down 2.35 percent on Monday.

This echoed several sessions of declines around the world last week, as a rally that kicked off in mid-March began to run out of steam.

Analysts said that investors were taking a more cautious approach before U.S. companies' reports of second- quarter earnings and a meeting of the Federal Reserve this week. The Fed is expected to keep interest rates at their record low levels near zero percent, but investors will pay attention to the U.S. central bank's statements about inflation and the success of its monetary policies.

Disclosure: Author does not own any of the stocks discussed here.

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