Asian markets sank Thursday with investors spooked by news that Netherlands-listed fund Carlyle Capital, expects its lenders to seize its assets and cause its likely liquidation. Carlyle Capital is an affiliate of private equity firm Carlyle Group.
Carlyle said it has defaulted on around $16.6 billion of its debt and said the only assets held in its portfolio as of Wednesday were U.S. government agency AAA-rated residential mortgage-backed securities. During the last seven business days the company had received margin calls in excess of $400 million. Carlyle was unable to pay the margin calls, so its lenders had proceeded to foreclose on the mortgage-backed securities collateral.
The U.S. dollar remains in the doldrums, falling to record lows against the euro and 13-year lows against the Japanese yen. It has also set a record low against the Singapore dollar. Several Asian currencies are also hitting multi-year highs against the dollar despite falling stock markets, as the gloss quickly comes off the U.S. Federal Reserve's plan to inject liquidity and unlock the credit market's freeze. Investors remain skeptical that the move would solve the fundamental problems faced by credit markets which have rattled financial markets and threatened global economic growth.
A jump in oil prices to a record above $110 a barrel also raised fears of more strains on consumer spending and corporate profits, further dampening sentiment.
Japan's Nikkei 225 Average finished down 3.3 percent, hitting a new 2-½ year closing low. The dollar hit a 13-year low against the yen and exporters such as Honda Motor extended losses on growing fears of a U.S. recession. Major banks were battered as well, with Mizuho Financial Group hitting its lowest close in four years on growing doubts about the Federal Reserve's efforts to aid strained credit markets and limit the damage to the U.S. economy. Toshiba also declined on media reports that the electronics firm is likely to post a 50 billion yen loss from terminating its HD DVD business, bringing total HD DVD-related losses to 100 billion yen for the year ending in March.
South Korea's KOSPI retreated 2.6 percent led by transportation shares, while LG Display dived after Philips sold down a large line of shares. LG Display, previously called LG.Philips LCD, closed down 8.82 percent on news Dutch electronics giant Philips sold about $1 billion worth of shares in the South Korean flat screen joint venture. Fuel-cost sensitive transportation stocks slid with Korean Air down 8.29 percent.
Australian shares closed 2.3 percent lower, erasing nearly all of the previous day's gains, as doubts over the U.S. central bank's latest move to ease credit problems hit financial firms such as Macquarie Group. Also hurting sentiment in the banking sector, data showed that jobless rates at home hit fresh 33-year lows, reviving worries about another hike in interest rates
Hong Kong stocks shed 4.8 percent, as weak U.S. and mainland stock markets damped investor confidence, undoing gains from the last session when global equity markets cheered a credit bailout by central banks. China Railway Construction posted respectable gains in its first day of trade, after drawing record demand for its $5.4 billion Hong Kong IPO.
China's Shanghai Composite Index tumbled 2.4 percent, below the 4,000 level for the first time since July last year, hit by concern about the possibility of tighter monetary policy and the market's ability to absorb large new supplies of shares. Financial stocks, among the most vulnerable to tighter monetary policy in response to high inflation, which hit a new 11-year high in February, were among the biggest losers.
Not helping sentiment on the mainland was weaker than expected data that showed a 15.4% increase in China's industrial output during the January to February months.
Singapore's Straits Times Index slipped 3.9 percent. Shares of metal jewelery maker Joyas International debuted 20 percent below its initial public offering price of S$0.29 per share. The Hong Kong-based firm, which has a manufacturing facility in China, raised approximately S$4.6 million (US$3.3 million) in its IPO.