Most Asian stock markets were down on
Tuesday as oil and food prices showed no signs of defusing
stagflation fears, particularly with soybean prices at a record
and oil above $141 a barrel.
European stocks were expected to open broadly lower, with
investors focused on euro zone and U.S. manufacturing data due
later in the day.
Bookmakers expected Britain's FTSE to open down 5-7 points,
Germany's DAX down 3-7 points, and France's CAC down 1-6
Crude climbed to an all-time high of $143.67 overnight,
causing investors to grow increasingly intolerant of risk in
their portfolios and seek relative safety in the yen.
The 40 percent surge in oil prices this year, even though
global economic growth has slipped below its long-term trend,
has made stagflation -- increased inflation combined with
slowing growth -- a top fear for investors and a major headache
After a five-year bull market, Asian equities have fallen
sharply this year on concerns that the credit crisis will sap
demand for exports and inflation will erode returns. As a
result, valuations have dropped from 17.7 times expected
earnings in the next year to around 13 times, according to
Standard & Poor's.
"One positive thing, if you could call it positive, is that
shares have gotten significantly cheaper. But I am not sure if
this alone would be enough to trigger foreign buying," said Kim
Joong-hyun, a market analyst at Goodmorning Shinhan Securities
Japan's Nikkei share average finished 0.1 percent lower to
record its longest losing streak in four years, as global
growth worries weighed on exporters such as Canon Inc (7751.T).
Automakers had provided an early boost to the index, which
on Monday posted its largest first-half decline since 1995,
after a report that Toyota Motor Corp (7203.T) plans to sell a
hybrid version of its Camry in China in 2010.
Asia-Pacific shares traded outside of Japan dipped 0.8
percent to a three-month low, according to an MSCI index. The
pan-Asia index was largely unchanged.
In the last six months, the Asia index chalked up its
biggest first-half decline in 16 years mainly because of heavy
losses in China and Vietnam.
Korea's KOSPI fell 0.5 percent, down for a fourth
consecutive session after a Bank of Korea official said
inflation could stay above target for longer.
Chinese shares fell 1.8 percent on the Shanghai composite
index as investors reacted negatively to news of yet more IPOs
coming to market, anticipating a glut of fresh equity.
Hong Kong's market was closed because of a public holiday.
Some analysts believe that the next three months, smack dab
in the thick of stagflation, is a good time to sift through the
markets for good buys.
"The third quarter is going to be a time to go back and
revisit the Asian markets because, by then, we'll have seen a
real capitulation phase," said Nomura chief Asia strategist
Sean Darby at a briefing in New York.
"Equities will probably be back to some of the lows we've
seen in the last 10 years, but there won't be much financial
distress, because the balance sheets are pretty good," said
Darby, who is bullish on Korea, Malaysia, Thailand and Hong
Kong, and would look to acquire Taiwan and Australia toward the
end of the third quarter.
The bond market entered the second half on a downbeat note
after a volatile past few months. The benchmark 10-year
Japanese government bond yield, which moves inversely to the
price, has declined around 20 basis points in the last two
weeks to the lowest in nearly two months.
The yield rose 8 basis points to 1.67 percent on news that
the June tankan's headline figure for big manufacturers was
higher than the median market forecast.
South Korean government bond yields also rose after the
country's central bank raised its inflation forecast.
The U.S. dollar rebounded slightly after slipping to a
three-week low against the euro on Monday.
The euro was essentially unchanged against the dollar at
$1.5767 ahead of a widely expected interest rate rise by the
European Central Bank on Thursday. The dollar was down 0.4
percent at 105.63 yen.
U.S. light crude for August delivery was up $1.09 at
$141.08 a barrel, after posting its largest first-half increase
The blame for who is responsible for the surging cost of
oil continued to be passed freely around the world.
Saudi Arabia's King Abdullah said even if production is
raised oil prices will not go down, because speculators and
taxes are what is behind the run up, according to the Arab