Wednesday, November 24, 2010

Asian shares steady; dollar firm on Korea tension

SINGAPORE: Asian shares steadied on Wednesday, Nov 24 from a sell-off following North Korea's deadly shelling of a South Korean island, but tension on the divided peninsula supported safe-haven assets such as gold, Japanese government bonds and the dollar.

The euro languished near a two-month low as demand for dollars combined with concerns that a rescue package for Ireland will not be enough to stop a debt crisis picking off more of the euro zone's most heavily indebted nations.

While Tuesday's artillery barrage was one of the most serious incidents on the divided peninsula since the end of the Korean War in 1953, market reactions to North Korean sabre-rattling or outright aggression have tended to be short-lived.

The Korean won fell around 2.5 percent before clawing back a bit, but South Korean stock and bond futures edged up, and foreign investors were net buyers of stocks on Seoul's main exchange.

"Korea trades at a discount to the region on a valuation basis ... If you look back at the last five years when we've had scares they were all seen as buying opportunities," said Todd Martin, Asia equity strategist with Societe Generale.

"The rule among hedge funds and long-only funds is that you let the market sell off and watch for your entry point."

Japan's Nikkei share average fell 0.9 percent, retreating from a five-month high and catching up with regional markets after a break for a public holiday on Tuesday.

MSCI's broadest index of Asia Pacific shares outside Japan was flat, with gains in Hong Kong , Shanghai and Singapore offsetting falls in Australia and South Korea .

U.S. stocks slid on Tuesday, rattled by the Korean flare-up and ongoing debt woes in Europe, to which U.S. banks have significant exposure. The S&P 500 index dropping 1.4 percent and the CBOE Volatility Index , Wall Street's "fear gauge", jumped 12.3 percent, its largest daily percentage gain in more than three months.

Japanese government bond futures bounced from a two-month low, with the 10-year benchmark <2JGBv1> up 0.14 point.

"Tensions in Korea are debt-positive in the short-run, spurring investors away from riskier assets," said Koichi Ono, a senior strategist at Daiwa Securities Capital Markets.


Currency markets remained more focused on Europe, where Ireland's beleaguered coalition was due later in the day to set out a four-year plan to save 15 billion euros through spending cuts and tax increases.

The bursting of a property bubble has taken Ireland's banks to the brink if collapse and shredded the finances of a government that agreed to back the lenders' liabilities.

Now investors fear a debt crisis that had already swamped Greece will spread further -- the premium on Spanish government bond yields over German benchmarks rose to a euro lifetime high on Tuesday.

"Contagion from the Irish situation during the last few months was largely limited to Greece and Portugal. Not any more," wrote Matthew Strauss, strategist at RBC Capital Markets, in a note.

The euro slumped 1.9 percent overnight to as low as $1.3359 and was trading around $1.34 on Wednesday. The dollar index , which measures its performance against a basket of currency, rallied to levels not seen since late September.

Gold was steady around $1,374 an ounce after reaching a 1-1/2 week high of $1,382 in the previous session.

U.S. crude oil futures rose 37 cents, around 0.5 percent, to $81.62. - Reuters

No comments:

Post a Comment