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Polls revolt in Europe spooks Asian markets

Publication Date : 08-05-2012

 

Shares across the region had their worst session in months after investors took fright at weekend election results in Greece and France.

A few Asian markets fell almost 3 per cent yesterday in the wake of the polls, which saw a voter backlash against the costly bailouts and tough austerity measures imposed by the European Union.

If the spectre of the debt crisis careening back into the danger zone was not scary enough, investors were also contending with disappointing April job data from the United States last Friday which suggested the country's economic recovery is faltering.

The upshot was a day of carnage from Tokyo to Sydney with shares pummelled and the euro initially taking a hit, falling 0.8 per cent against the greenback, before recovering its poise.

"It might not have been Black Monday across Asian markets but it was certainly a dark shade of grey," said Jason Hughes, head of premium client management at IG Markets Singapore.

Kelvin Tay, regional chief investment officer for southern Asia-Pacific at UBS wealth management, said the defeat of French President Nicolas Sarkozy by Socialist party candidate Francois Hollande had been largely expected by investors.

But the bigger concern was Greece's inconclusive elections where the results showed a big swing to groups opposing the European Union bailout - and its austerity measures - that has kept the heavily-indebted country financially afloat.

In Singapore, the benchmark Straits Times Index suffered its worst one-day plunge since November, after plummeting 65.64 points, or 2.19 per cent, to 2,924.95 and wiping S$14.6 billion in market value off shares.

Elsewhere, Hong Kong's Hang Seng tumbled 549.35 points, or 2.61 per cent - its worst one-day loss in six months - while Tokyo's Nikkei-225 Index fell to a three-month low after losing 2.78 per cent.

In Europe, the Paris stock market initially slumped 1.6 per cent, but recovered most of its earlier losses. Wall Street reacted by falling 0.4 per cent in early trade overnight.

Fears of slower global economic growth also took its toll on oil prices, with benchmark US crude futures tumbling more than US$1 to US$95.34 a barrel - the lowest in almost five months.

But investment strategists are optimistic that the sell-off will be temporary.

DBS Group Research regional equities strategist Joanne Goh felt that the sell-off was simply a pull-back after the big run-up experienced by regional markets earlier this year.

"The European debt crisis has been simmering for the past two years, and it will not go away any time soon no matter who is in power," she said. "Investors are likely to have taken the crisis in their stride."

The poll results in France and Greece came after a tumultuous few weeks in which the Dutch government fell and Britain's Conservative-led coalition received a licking in local elections. In all cases, at front and centre was the growing debate over austerity versus growth, with opponents of strict cuts arguing that they are succeeding only in driving the region's economies into the ground.

The pushback in Europe could hold tough lessons for the United States, where government spending and the deficit have emerged as major election-year issues. Presumed Republican nominee Mitt Romney has vowed to cut the deficit at a faster pace than President Barack Obama.

But the mixed results of such policies in Europe - where a voter backlash has brought down leaders in Italy, Spain, Ireland, Portugal and now France and Greece - could make the argument for speedy deficit reduction increasingly difficult.

 

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