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Another round of drop – Red Alert for Asia on Friday



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Aug 09 2007
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I hope you’re still sitting on the fence watching the stocks take its course. Wall Street fell sharply again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. As of 1:15 p.m. trading time, the Dow Jones was down 200 points with both Nasdaq and S&P500 in red as well.

Basically there are 4 measures that had made the matter worst namely:

  • The announcement by BNP Paribas that it was suspending three funds (Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia) worth about $3.79 billion and wouldn’t make investor redemptions until it could determine net asset values. The suspended funds represent roughly 0.79 percent of the $482.79 billion in assets the Paribas division holds.
  • A move by the European Central Bank to provide more cash to money markets ($130 billion) in overnight funds to banks at a bargain rate of 4 percent which was intended to calm investors is seen as confirmation to the credit markets’ problems.
  • The Federal Reserve which followed suit by adding $12 billion to U.S. markets to help ease liquidity constraints has actually add salt to the wound as it created a mini-panic. If everything is fine, why would the Feds stepped in to assists the market?
  • President Bush’s re-assurance yesterday on the U.S. economy, despite him leaving the economy issues to others previously, could be a signal that the subprime mortgages might be more serious than earlier thought.

It appears the Bear is gaining momentum as the Bull is taking the back-seat. You can definitely expect another round of sell-off in the regional markets including Malaysia when the stock market re-open on Friday if today’s plunge continue till the closing bell.

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