Asia's Woes Make Market Jittery

The Age

Saturday November 8, 1997

David Saunders

Further wobbles on Asian markets filtered through to Australian stock prices yesterday, sparking fears of another serious correction next week.

Brokers described the 2.2 per cent slide as alarming and warned that markets throughout the world could be in for a new round of turbulence.

Speculation in Tokyo that Japan's biggests regional bank, the Bank of Yokohama, was planning to liquidate its equity holdings, coupled with concern about the state of the Japanese economy, caused a sell-off that pushed the Nikkei stock average below the crucial 16,000-point support level to a two-and-a-half-year low.

The ructions moved on to Hong Kong, where the Hang Seng Index fell 308.06 points, or 2.9 per cent, closing at 10,104.50.

The local sharemarket began its descent after an upbeat first hour of trade, following the negative lead set by Tokyo. The All Ordinaries Index ended down 57.6 points at 2513.4.

Metal stocks reflected the turnaround within the session. After reaching a high of 654.6, the Other Metals Index slumped in the afternoon to close at 630.6, a fall of 1.1 per cent.

WMC climbed to $5.70 before sliding in the afternoon to close nine cents down at $5.25.

But even worse was the plight of Western Metals, which dropped 8.3 per cent to 88 cents.

Pasminco fell 7.9 cents to $1.691, causing further headaches for its rights issue underwriters, who were praying for the stock to rally to $2, the issue price of new shares in its $500 million equity raising to purchase the Century Zinc project.

BHP was savaged, with investors showing their concerns about the company's exposure to Asian markets. The market leader fell 71 cents to $14.27, a drop of 4.7 per cent.

Apart from concerns about Asia and the implications on demand for metals, commodity prices fell hard on Thursday, pushing copper below 90 US cents a pound and zinc to nine-month lows in London.

A lack of buying at crucial support levels pushed copper lower, with traders in London reporting a general malaise in the market.

Just when it looked set for a turnaround of sorts, Coca-Cola Amatil was again badly hit by the slump in Asia, falling more than 5 per cent to $11.48.

All eyes were on Washington and New York overnight in anticipation of the reaction to US employment figures. Brokers said a result outside market forecasts could precipitate another slide.

The international equities strategist at Rothschild Australia, Mr Steven Milch, said fears emanating from Tokyo about Japanese financial houses had severe implications.

"I think the danger now is that you get all these concerns about the solvency of the banks. Nobody knows at what levels the share values held by the banks vanish," Mr Milch said.

Movements in Burns Philp's share price suggested that the yeast and spice group was not going down without a fight as its shares "bounced back" half a cent to 20.5 cents following a horrendous two days in which they fell more than 72 per cent.

The run on bank shares came to a screeching halt, with National Australia Bank off $1.15 to $20.30, just a day after it posted a record $2.2 billion net profit.

ANZ fell 51 cents to $9.88 while Commonwealth Bank was off 59.3 cents to $17.10 and Westpac fell 22 cents to $8.60.

In the transport sector, Brambles defied the market's plunge to close 10 cents up at $27.70, having reached $28.10 earlier.

Not so well off was Qantas, which was down five cents at $2.47. Since peaking last month at $3.17, the stock has come off sharply, with brokers concerned that expected earnings and yield gains for the airline would not come through as quickly as expected.

One broking firm, a strong supporter of the stock, downgraded its recommendation from buy to hold about the time it reached its top on 22 October.

Other big industrials to fall heavily included CSR, which lost 4.6 per cent to close at $4.76 and News Corporation, which dropped 22 cents to $7.17.

* Renewed pressure on Asian sharemarkets contributed to weakness in local stock prices yesterday. The All Ordinaries fell 2.2 per cent, closing 57.6 points down at 2513.4, with morning gains wiped out as Asian markets began trading. The drop came as Tokyo's Nikkei average slipped to a 21/2-year low, with concerns about bank solvency triggering a sell-off across the region. The impact was felt by some of the local market's biggest stocks. BHP and CC Amatil were among the hardest hit.

Stockwatch

The environmental technology company Geo2 announced yesterday that it would raise $5.5 million through a one-for-six rights issue.

The new shares will be valued at 43 cents each, with a free option exercisable at 20 cents by 1 June 1999.

The company specialises in water-treatment technology. It said the funds would be used to extend commercialisation of its mine-drainage, water-decontamination and other water-purification systems.

The mine technology, known as the green precipitate process (GPP), is being used in Australia, the US and other markets. Geo2 shares closed steady at 45 cents.

Money

The dollar stayed below 70 US cents yesterday as concerns about the economic troubles in Asia heightened. The currency fell to 69.60 US cents down from its previous close of 69.84.

While comments from the Reserve Bank chief, Mr Ian Macfarlane, on Thursday suggested the chance of an interest rate cut were fading, some economists remained hopeful. AMP's Dr Shane Oliver said the dollar's weakness against the greenback was not a barrier to a cut because the trade-weighted index remained high.

Bonds were stronger, with the yield on 10-year bonds down 12 points at 5.97 per cent while the three-year rate slipped 10 to 5.18.