Asian markets tumble as oil spikes, and Wall Street wobbles

Asian markets tumble as oil spikes, and Wall Street wobbles

JEREMIAH MARQUEZ
Friday, June 27, 2008

HONG KONG — Asian stock markets tumbled Friday amid growing alarm as oil prices spiked above $141 a barrel for the first time and Wall Street plummeted overnight.
The sell-off spread across the entire region, with every key index in the red.

Shanghai's benchmark plunged more than 5 per cent to 16-month low. India's Sensex was down 3.8 per cent in afternoon trade. Japanese stocks dropped for a seventh day to a two-month low. Markets in Hong Kong, South Korea, New Zealand and the Philippines were off around 2 per cent.

Sentiment took a hit after U.S. stocks sank Thursday, with the Dow Jones industrial average sliding more than 3 per cent to its lowest level in almost two years.

Worries about the outlook for the U.S. economy — a vital export market for Asia — intensified after dismal news about a number of industries. Analysts downgraded General Motors Corp., Citigroup and Merrill Lynch & Co., while tech companies Oracle Corp. and BlackBerry maker Research In Motion Ltd. offered disappointing forecasts.

Oil prices, which climbed above $140 (U.S.) a barrel late Thursday, surged above $141 in Asian trading Friday, spurring further concern about inflation and rising costs.
“We've still got bad news on the credit crunch, we've got bad news about consumers,” said Garry Evans, pan-Asian equity strategist with HSBC in Hong Kong. “The macro environment is not a good one and people are very risk averse.”

In China, the Shanghai Composite Index sank 5.3 per cent to 2,748.43 points, the lowest close since February 9, 2007. Aside from record crude prices, reports of speculation about possible bank rate hikes were spooking investors.


Institutional investors are becoming disappointed with the authorities for staying hands-off during this year's slide, said Xu Zhiyuan, strategist at Capital Edge Investment and Management in Shanghai.

“Investors are selling shares regardless of the loss,” he said.

Huaneng Power International Inc. was one of the hardest-hit stocks, falling nearly 10 per cent. Airlines also suffered from the oil news, with China Eastern Airlines falling 9.7 per cent and China Southern Airlines falling 9.5 per cent.

Tokyo's benchmark Nikkei 225 index shed 2 per cent to 13,544.36, the lowest finish since late April. Honda Motor Co. lost 2.7. Sony Corp. dropped 4.3 per cent.
Indian stocks sank as investors worried about inflation that has risen to 13-year highs and that recent interest rate hikes would temper consumer spending.

“Sentiment is bearish. There are fears that crude will touch $180, this is a worry that cannot be stamped out easily,” said Gul Tekchandani, a Mumbai-based investment adviser. “Few can stomach this volatility, plus there are weak global cues with the U.S. economy also down.”
Hong Kong's Hang Seng index trimmed earlier losses to close down 1.8 per cent at 22,042.35. Refiner China Petroleum & Chemical Corp, or Sinopec, lost 3.6 per cent, and airline Cathay Pacific was down 1.7 per cent.

Mobile phone maker Foxconn International Holdings, Motorola's primary contract manufacturer, tanked almost 8.5 per cent amid fears over consumer demand.
Elsewhere, the main Philippine Stock Exchange Index ended 2.2 per cent lower, it's lowest finish in 21 months.

In currency trading, the dollar stood at 106.86 mid-afternoon in Tokyo, little moved from 106.91 yen in New York late Thursday. The euro stood at $1.5772 in mid-afternoon in Tokyo, compared with $1.5751 in New York.

© Copyright The Globe and Mail

Jeff Rubin and Benjamin Tal warned Thursday, saying that gasoline could surge to $7 a gallon

As oil hits $140, a new low for Detroit

GREG KEENAN
Thursday, June 26, 2008
Chrysler LLC trotted out celebrated retired chairman Lee Iacocca to rally employee spirits on Thursday, but investors were more interested in bankruptcy rumours that continued to haunt the auto maker and yet another fresh high for energy prices that are pounding the entire industry.

The Chrysler rumours and a downgrade of General Motors Corp. stock by Goldman Sachs Inc. knocked down the shares of major North American auto makers and their suppliers.
“There is no basis for the rumour,” said Chrysler spokesman David Elshoff, after the speculation started up in Europe and swirled throughout the North American auto industry, sparking a meltdown of auto industry stocks on Bay Street and Wall Street.

Hours later, Mr. Iacocca, told cheering employees at the company's headquarters in Auburn Hills, Mich., that the third-largest Detroit auto maker will ride out the storm the way it did when he was at the helm more than 25 years ago. Mr. Iacocca is still regarded as a saviour who helped keep it from falling into the financial abyss during the early 1980s.

The message didn't work as well with the Street. Making matters even more dour, oil surged above $140 (U.S.) a barrel again on the New York Mercantile Exchange and closed t a record $139.64.

The Detroit auto makers are reeling from a collapse in sales of pickup trucks and sport utility vehicles in the U.S. market amid gasoline prices above $4 a gallon and the U.S. real estate collapse.

It could get even worse, CIBC World Markets Inc. economists Jeff Rubin and Benjamin Tal warned Thursday, saying that gasoline could surge to $7 a gallon, which will cause Americans to abandon some of their vehicles and send sales through the floor.

Ford and GM have already scaled back truck and SUV production twice in recent weeks. Chrysler announced last November that it will slash production this year, but has insisted it will plow ahead with a redesign of its Dodge Ram pickup and has not adjusted production to deal with the recent slide in the U.S. market.

There are forecasts that June sales in the United States could reach a 16-year low of 12.5 million on an annualized basis – a bad sign because April, May and June are key months for sales.
“If you don't sell vehicles in April, May and June, you're screwed for the rest of the year,” the source said.

A day with wave upon wave of bad news is becoming a regular occurrence for auto makers – especially Detroit, where the U.S. housing crisis and the soaring price of gasoline are combining to cause what could be the worst situation the three auto makers have faced.

“We think GM's automotive cash flow burn this year and next is likely to lead it to look to raise capital, which we believe could lead to significant shareholder dilution and/or a cut to the company's dividend,” Goldman analyst Patrick Archambault wrote in a research note.

GM shares fell 11 per cent to a 33-year low and Ford Motor Co. shares briefly dipped below the $5 level to $4.94, a penny below their 52-week low.
Mr. Archambault urged investors to stay away from parts makers that have the bulk of their business with the Detroit Three.

That includes Magna International Inc.,which generates 53 per cent of its sales from Chrysler, Ford and GM, and has a close relationship with Chrysler that goes well beyond simply supplying the auto maker with parts.

The Motor City Meltdown spilled over to Magna's shares and sent them cascading. The stock fell $3.72 (Canadian) or 5.6 per cent Thursday and closed at a seven-year low of $62.27 on the Toronto Stock Exchange.

The growing crisis in Detroit overshadowed the positive news for Magna that Porsche AG has chosen the auto parts giant's Magna Steyr assembly division in Austria to build Boxster and Cayman sports cars beginning in 2012.

With files from Reuters and Associated Press
© Copyright The Globe and Mail