U.S. News

Asian Financial Stocks Skid on Credit Crunch Worries


Financial stocks skidded across Asia on Monday as investors, worried that further fallout looms from the global credit squeeze, dumped shares in Mizuho Financial, Macquarie Bank and Shin Kong Financial, among others.

Macquarie, Australia's biggest investment bank, fell as much as 7.6%, taking losses over the past two weeks to about 23%. The firm last week rattled markets when it said retail investors in two of its funds face losses of up to 25%.

At the end of the morning session, Japanese banks traded 2.67% lower, with No. 2 lender Mizuho off by 4.4% and larger rival Mitsubishi UFJ Financial Group down 3.36%. Top brokerage Nomura Holdings was down 3.6%.

A growing number of Asian financial firms have revealed exposure to U.S. subprime related problems, mostly through holdings of structured products, with more disclosures expected.

While analysts have said that Asia's exposure should be small and manageable, investors are in an unforgiving mood and are likely to remain so until a clearer picture emerges.

Winson Fong, head of greater China equities with Societe Generale Asset Management in Hong Kong, said he expects more small and mid-sized financial firms to reveal the extent of their holdings in instruments exposed to the subprime crisis.

"The size may be bigger than what we expect, so there may be some more de-rating on the sector. And I think it's just the beginning, so I don't think we'll see a sharp rebound anytime soon," said Fong, whose firm manages $2.5 billion in Asian stocks. "This is really a black hole," he added.

Singapore banks DBS Group Holdings and United Overseas Bank were both 6% lower after the city-state's central bank on Friday told local financial institutions to take account of their exposure to collateralised debt obligations (CDOs).

Shares in Shin Kong, which runs Taiwan's No. 2 life insurer, fell 4% after is said late on Friday that about one-third of its T$10.53 billion (US$320 million) in asset-backed securities holdings were related to U.S. subprime products. Rival Cathay Financial Holdings was down by 2%.

"Taiwan insurers will be hurt by their exposure to the U.S. subprime market, prompting investors to dump financial stocks," said Chris Wang, who manages $82 millions for Paradigm Asset Management and does not own any financial shares. 

Unforgiving Investors

Monday's selloff pushed the MSCI index of Asia-Pacific financial stocks 2.2% lower, and the index is now 8.5% below an all-time high reached on July 24.

It followed another slide on Wall Street on Friday, when Standard & Poor's cut its rating on the debt outlook of Bear Stearns and the U.S. investment bank halted share buybacks to help it weather the credit storm. 

Financial shares dragged markets lower across the region. China Life Insurance, the country's biggest insurer, was down nearly 4% in Hong Kong, while the country's big listed banks as fell, with top lender Industrial and Commercial Bank of China (ICBC) down 3.4%.

Citigroup banking analyst Tracy Yu said in a Monday note that the selloff in Asian financial stocks was overdone.

The impact of U.S. subprime mortgage problems and falling prices of structured products should be manageable for Asian firms, "unless there is a broader re-pricing of CDO risk and credit spreads that results in a significant loss for even the highest grade investments," she wrote.

In Australia, other financial stocks followed Macquarie lower, with Babcock & Brown down 4.2%, Allco Finance Group off by 5% and Challenger Financial Services Group 4.2% lower.

Investors fear the worst is not over. "It's the uncertainty of how it's all going to unfold in the future, and what that actually means for the ongoing earnings is the main issue for investors," said Tony Russell, a senior equities adviser with ABN AMRO Morgans in Brisbane.