By Myra P. Saefong
Major Asian indexes traded sharply lower Wednesday, as sovereign
debt concerns sent the U.S. dollar higher and fueled broad weakness
among most Asian currencies.
"Risk aversion is back with a vengeance, as reflected in the
rise in equity volatility," Mitul Kotecha, forex strategist with
Credit Agricole, said in a note to clients.
He added that the Credit Agricole CIB Risk Aversion Barometer
has jumped to its highest level in almost three months.
Aside from concerns about the implementations of the European
Union/International Monetary Fund aid package for Greece, approval
and contagion, "various rumors dealt a blow to markets including
talk of a sovereign ratings downgrade and a 280 billion euro [$363
billion] bailout for Spain," he said.
All in all, "the markets appear to be worried that the bailout
proposals won't do the trick, and Greece will fall into bankruptcy,
followed by Portugal, then Spain," said Ed Bugos, director of
mining finance at Strategic Metals Research and Capital.
Credit spreads have widened, he said. "The risk trade has
returned and another stock market route has probably started."
Against that backdrop, "the [U.S. dollar] is the clear winner,
spiking to its highest level since May 2009, and is looking well
set to consolidate its gains over the short term despite the fact
that net aggregate [dollar] speculative positioning has already
reached its highest level since September 2008," Kotecha said.
Currency moves
The greenback showed its strength against most of the Asian
currencies Wednesday.
In early afternoon trading in Asia, the U.S. dollar bought 94.74
Japanese yen, well up from 94.42 late Tuesday in North American
trading.
Tokyo's stock market will reopen on Thursday after the "Golden
Week" holidays. A weaker yen usually boosts business for exporters
in Japan, but the recent sharp declines in the U.S. and Europe may
outweigh any boost for the stock market when it resumes
trading.
Other Asian units also tracked lower. According to data from
FactSet Research, the dollar was rose to 3.228 Malaysian ringgit
compared to 3.213 ringgit, and was slightly higher at 32.33 Thai
baht versus 32.31 baht earlier. The exception was the Indian rupee,
which was a bit stronger than on Tuesday, with the dollar buying
44.47 rupee, down from 44.55 rupee.
The Australian dollar was nearly flat at 91.01 U.S. cents, but
it had already weakened between Monday and Tuesday, after the
nation's central bank raised its policy cash rate for the third
time this year citing inflation concerns.
"Speculative positioning has dropped for the past two weeks as
longs are taken off, but AUD/USD weakness is set to be temporary,
with buyers likely to emerge around near-term supposed seen around"
90.01 U.S. cents, said Kotecha.
The South Korean won was untraded with the market on holiday,
though on Tuesday one U.S. dollar bought 1,115.35 won, slightly
down from 1,118.55 Monday.
Resources hit
For now, the wave of losses in the U.S. and Europe kept Asia's
major indexes lower, with resource stocks suffering the brunt of
the pressure.
The Shanghai Composite was down 1.8%, and the Hang Seng Index
dropped 2%. The Philippines PSE Composite lost 2.9%, while Taiwan's
Taiex shed 2.7%.
Among the individual stocks, resource shares appeared to be
among the hardest hit.
In Sydney, BHP Billiton Ltd. (BHP) fell 1.2% and Fox Resources
Ltd. (FXR.AU) sank 10.3%.
Aluminum Corp. of China Ltd. (ACH) dipped 2.8% in Hong Kong and
lost 7.2% in Shanghai. Angang Steel Co. (ANGGY) fell 4.3% in Hong
Kong.
But with the euro hitting a fresh annual low recently, at least
one analyst was upbeat about the outlook for the gold sector.
"The euro is fundamentally unsound," said Bugos, and the market
is "still uncertain about whether the EU is going to commit to back
Greece all the way."
The U.S. dollar is "an automatic initial beneficiary in times
like this, but it can't be bullish for the U.S. dollar that the
market is realizing the euro is just as bad as the dollar, or even
worse," he said.
"Chances are you'll see most commodities fall along with stocks,
but gold should hold up and rally afterwards when the politicians
have come out with their packages and solutions that will
ultimately soothe the markets but will likely be more of the same,"
he said.