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European and Asian Markets Rally on News of U.S. Rate Cut
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Some economists had argued for months that Asian countries were largely insulated from U.S. problems because of strong growth in China and India. But recently, companies and financial institutions in those countries have announced that they too have significant exposure to subprime mortgage securities that have collapsed in the United States.
Kai Jiang, chief executive of China Fund, said "a lot of Chinese banks, any banks to some degree, are exposed to the subprime crisis." Still, he said, he remains optimistic about the health of the global economy.
Less than a month into the new year, several of Asia's largest stock markets are already down by double-digits.
In Japan, the benchmark Nikkei 225 index dropped 5.65 percent yesterday after losing 3.86 percent on Monday. It is now down nearly 18 percent this year.
In Hong Kong, the Hang Seng index was down 8.65 percent yesterday, after falling 5.49 percent the day before. The Hang Seng is off 19 percent this year and down 30 percent from late October.
The selling affected some of Asia's largest exporters, which depend on the U.S. market. Samsung Electronics of South Korea, for example, slid 5 percent. Australian mining stock BHP Billiton was down 7 percent.
PetroChina, which a few months ago was hailed as the first company to pass the $1 trillion in stock market value, fell 12 percent yesterday . Shares now are down by half since their high on Nov. 1.
Governments throughout Asia explained their exposure to U.S. problems.
"The U.S. is among China's largest exporting destinations, so if U.S. demand weakens, the impact on China would be very serious," said Zhang Tao, deputy director-general of the Chinese central bank's international department.
In India, Finance Minister P. Chidambaram urged investors to remain calm. "There is no reason to allow the worries of the Western world to overwhelm us," he said. "Our economy is very different from the economies of developed countries, which are facing some stress. Our economy is very strong -- market sentiment should be a positive sentiment."
Sullivan reported from London, Cha from Shanghai. Correspondents Craig Whitlock in Berlin, Molly Moore in Paris, Peter Finn in Moscow, Manuel Roig-Franzia in Mexico City and Rama Lakshmi in New Delhi, and special correspondent Brian Byrnes in Buenos Aires, contributed to this report.
