Worst week for 15 months takes toll

Continued global volatility caused by Europe’s debt crisis led to the worst week for Asian equities for 15 months.

“Investors appear to have thrown in the towel,” said Prasad Patkar of Platypus Asset Management in Sydney. “This does feel like capitulation. Still, the base case is that macro worries will settle down and investors will be able to refocus on fundamentals.”

The FTSE Asia-Pacific index plunged 6.7 per cent to 213.92, its lowest closing level for nearly nine months.

The one glint of light was the performance of Shanghai equities. Although the Composite index suffered heavy losses of 4.2 per cent over the week – taking it further into bear market territory – the China benchmark edged up 1.1 per cent on Friday to 2,583.52 on growing hopes that Beijing may hold off on interest rate rises.

“Sentiment is improving as the market senses the government may shift its stance on tightening given the external uncertainties,” said Chen Wenzhao of China Merchants Securities. “China has a lot in reserve to prevent a double-dip slowdown.”

A rise in Shanghai turnover on Friday indicated that some funds were returning to the market to chase bargains. The property sector, badly hit by Beijing’s recent clampdown on speculation, was the main target.

The Shanghai property sub-index closed 3.3 per cent higher on Friday. Gemdale , China’s third-largest developer, rebounded 7.6 per cent to Rmb6.63 after losses of 8.4 per cent on Monday.

Hong Kong’s market was closed for a public holiday but the Hang Seng index lost 3 per cent during the first four trading days of the week, slipping below the 20,000 level to 19,545.83.

The Nikkei 225 Average in Tokyo also fell below a key psychological level this week, dropping 6.5 per cent through 10,000 to 9,784.54. This was its worst five-day performance in 16 months and lowest close in five months.

With many Japanese exporters having set their currency assumptions for euro/yen at about Y120-Y125, the euro’s plunge this week below the Y110 level is threatening earnings.

Leading exporters suffered, including Canon , down 7.9 per cent to Y3,725, TDK , down 11 per cent to Y5,440, and Honda , retreating 6.4 per cent to Y2,823.

The Nikkei’s next support level is seen at about its November low of 9,076, a 50 per cent retracement of its 2009-10 rebound.

The Thai Stock Exchange was burned down by protesters amid a wave of anti-government violence in Bangkok this week. But the military moving in to restore order actually led to a 0.7 per cent rise in the benchmark SET index to 765.54 on Wednesday, before trading was suspended for the rest of the week. This pared its losses for the week to just 0.4 per cent.