Shares Tumble in Asia and Europe

By HEATHER TIMMONS

NEW DELHI — Asian and European markets nose-dived on Monday as hope that healthy local economies might escape the force of a United States recession evaporated and fear gripped investors instead.
Blue chip stocks lead the declines in most markets, dragging major indexes in Hong Kong, Shanghai and India down by more than 5 percent during the day, while those in South Korea and Australia fell by nearly 3 percent.
In Japan, which may be facing a new recession of its own, most indexes were off by more than 3 percent.
European shares sank 4 percent by late morning on Monday, putting them on track for their biggest one-day fall in more than four and a half years as fears of a recession in the United States rattled investors.
Shares in oil and financial companies took a hammering, Reuters reported.
By midday, the FTSEurofirst index of top European shares was down 3.9 percent at 1,304.98 points, a level not seen in eighteen months.
The FTSE 100 index of leading British shares fell by more than 300 points, or more than 5 percent, and Germany’s Dax index was down by more than 500 points, or more than 7 percent.
In Asia, Shanghai’s Composite Index closed down 5.1 percent at 4,914.44, and Hong Kong’s Hang Seng fell 5.5 percent to 23,818.86, the biggest fall since the Sept. 11, 2001 terrorist attacks in the United States.
The across-the-board sell-off that began in Asia, even after American markets stabilized Friday on the back of a $145 billion aid package, means investors in Asia are convinced that an American recession is looming, and that it will have local impact in Asia, economists and strategists said.
No matter how many bridges, roads and power plants China builds, or new cars India sells, a downturn in the United States will batter Asian economies, they said.
Investors in Asia have been in a state of denial about the possibility of a United States recession, said Adrian Mowat, JPMorgan’s chief strategist in Asia, but now, he said, “there’s no debate about it.”
He said investors are asking “how long and how deep” the recession might be.
In recent months, some ardent emerging market investors have preached the idea that fast-growing areas like most of Asia have “decoupled” from developed markets, meaning the economies of the two groups would no longer move in tandem.
The old investing adage “When the United States sneezes, Asia catches a cold” no longer applies, these decoupling proponents argued.
But a recent slump in emerging markets, capped by Monday’s landslide, means investor sentiment is changing.
Mr. Mowat said that it did not matter whether global markets were separated by geography or asset class because “we trade together in corrections.”
Deborah Schuller, an Asia regional credit officer for Moody’s Investor Service, said: “If the United States consumer quits buying things, it is going to hurt” in Asia.
Most rated corporations in Asia will be able to withstand nine months of United States recession, but if hard times in America stretch to 12 months or more, there could be some serious problems, she said.
Worries about China’s economy are also giving investors in Asia heartburn.
The country’s private property market is in the midst of a shakeout, and scores of small developers have gone out of business. Meanwhile, fears of inflation have been looming for months.
Chinese banks were hard hit Monday, in part because they hold the bulk of Asia’s exposure to United States subprime mortgages.
Japanese stock markets fell Monday to their lowest levels in more than two years on concerns that an American recession could be accompanied by a local one.
The Nikkei 225 fell 3.9 percent to close at 13,325.94, the lowest level since Oct. 25, 2005. Investors were unimpressed by the stimulus package announced by President Bush on Friday, and concerned by data from the Japanese Finance Ministry. The ministry said Monday that growth was slowing in five of the Japan’s economic regions, which have been hit by stagnant housing investment and the poor employment picture outside the major cities.
The Bombay Stock Exchange’s Sensex index plummeted 7.4 percent — its second-largest percentage loss ever — and suffered its biggest-ever point loss of 1,353 to close at 17,605.35.
Hardest hit were some of India’s most valued companies, including Reliance Communications, Tata Steel and Reliance Industries.
Australian stocks slid again Monday, their tenth day of straight losses, and the longest losing streak for more than 25 years. The S&P/ASX 200 index dropped 2.9 percent as investors scrambled to get out of companies perceived to have high exposure to debt.
Allco Finance Group, a once high-flying transport infrastructure fund that was part of the consortium that attempted to buy Qantas Airways last year, was among the hardest hit, dropping over 35 percent. Allco is now more than 75 percent off its high of 13.24 Australian dollars in February last year.
There may be more downturns in store for Asia, particularly as banks report the impact from their investments in the American mortgage market.
Companies “have not announced their year end numbers yet,” said Ms. Schuller, and if they are holding subprime assets, they may need to write them down, she said. “They are going to be taking these 25 to 30 percent haircuts we’re seeing on Wall Street,” she said. “I think it is going to shock people.”
Tim Johnston contributed reporting from Sydney, and Martin Foster contributed reporting from Tokyo.