Asian stocks tumbled early on Monday, starting what is likely to be a chain of torrid trading in Europe and the US later. Investors are taking fright at America’s government debt downgrade and Europe’s debt wound that refuses to heal.
Friday’s forecasts came true this morning when markets in Australia, China, Japan and South Korea started tumbling.
The situation in Asia’s third largest economy, India, is evolving.
This is the way markets are responding to the US debt ceiling debate and American credit rating downgrade.
Asian markets have reacted very strongly due to their vast interests in the US. Combined, Asia holds three trillion dollars of the American debt, so their vigilance is understandable.
China is the Number One holder of US debt, while Japan boasts second place, and they both have the hiccups after Standard and Poor’s sent the US one notch down to an AA+ credit rating after 70 unbroken years of dominance in the credit hierarchy.
China has already labeled the American debt situation immoral and irresponsible, insisting the US deal with its problems without delay.
t seems likely that if investors were to diversify from holdings in American treasuries, they would be sure to look seriously at the Asian markets which therefore stand to benefit most from the current situation.
Michael Wong of Ctrisks credit rating agency believes US investments will keep on depreciating while Asian countries will do their best to diversify their risks.
“They are going to buy loans issued by other countries, not simply the US ones,” he said.
Talks about moving away from the US dollar are high on the agenda this summer, though which currency might become a new reserve remains unknown. It is probable that some Asian currencies will be added to the basket of currencies that could be used as substitutes for the greenback.
The G20 deputy finance ministers of world’s leading industrial countries held emergency phone talks yesterday, and issued a statement urging the US to deal with the crisis immediately.
The EU Central Bank even announced its readiness to implement a program to boost Spanish and Italian bonds to bring down interest yields, thus saving these countries from a debt crisis.
Russian stocks are also expected to feel the pinch when they open this morning, with Friday trading ending in negative territory, having nose-dived in line with the global markets.
The S P downgrade of the US “triple A” credit rating was made on Friday after the stock markets were already closed so the scale of the fallout is expected to become apparent only today.
The current prognosis for one of Russia’s two main bourses, the RTS exchange in Moscow, is negative though some believe that traders will be able to resist this “Black Monday” type of situation. Others say America’s AA+ rating is still a reliable one so nothing particularly tragic is expected to occur.