High volatility seen on heels of banks' downgrade
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The global financial market will be subjected to high volatility following Moody's downgrading of the credit rating of 15 global banks - a ripple effect that is expected to hit the United States by the end of this year.
However, Thailand and other Asian countries may not be seriously affected because their economies are relatively resilient, experts say.
“The rating cut shows that some European countries have gone into a second round of recession since the global financial crisis first hit the continent in 2008, Teerana Bhongmakapat, professor of economics at Chulalongkorn University, explained yesterday.
Asian stocks fell yesterday as investors were worried about the health of global banks and the US economy slowing down further.
Teerana said that if the health of European economies worsened, major banks in the US and Europe might end up selling their stocks in Asia in order to recoup funds for bank recapitalisation – a move that would hit Asian stock markets really badly.
However, he said, investors had not panicked this time because they believe that the European Central Bank and the US Federal Reserve have the capacity to provide liquidity for the banks. He predicted that repercussions are expected to hit the US in the next few months because its economy is deeply linked to those of European countries.
“The financial market is expected to be subject to high volatility as investors might dump their euro-risk assets to hold safe-haven dollar-denominated assets for a while or move to gold. Since the world is flooded with excessive liquidity, this huge liquidity would move from one asset class to another in a speculative manner responding to new events,” Teerana said.
He added that the impact on Thailand and other emerging economies might not be that serious because they are relatively strong. Any negative impacts on Asia might be offset by importers shifting from troubled economies to emerging ones because they may not be too sure about goods being delivered in time from producers in failing economies, he said.
Financial stocks dropped after Moody’s cut credit ratings for Credit Suisse Group, Morgan Stanley and 13 other banks. The lenders have “significant exposure to the volatility and risk of outsized losses inherent to capital-markets activities”, Moody’s Global Banking managing director Greg Bauer said in a statement.
Asian stock markets also fell yesterday over fears of instability in financial institutions after Moody’s downgraded 15 global banks.
The Stock Exchange of Thailand index dropped by 0.53 per cent yesterday to close at 1,152.91 points.
Japan’s Nikkei lost 0.29 per cent, while South Korea’s Kospi Index sank 2.2 per cent. Australia’s S&P/ASX 200 Index slipped 0.96 per cent. Hong Kong’s Hang Seng Index dropped 1.4 per cent.
“There will be a further downslide,” said Peter Elston, Singapore-based head of Asia-Pacific strategy and asset allocation at Aberdeen Asset Management. “Things are getting worse. When you have an essentially weak private sector, you’re relying on the government to step in and support things. You’re seeing a gradual weakening of the ability of governments to step in.”
