Slump in exports turns Asian tiger into pussycat

Japan's stock market crashed, South Korea's currency convulsed and Singapore said it was in recession. Suddenly, Asia doesn't look to be the strong cushion that some had counted on to soften the falling global economy.

Although Asia has suffered relatively little direct effect from toxic American mortgage-backed securities, a global downturn is proving a drag on exports, the lifeblood of many Asian economies. Slumping demand from the U.S. and Europe is crimping corporate earnings and leading to higher unemployment.

"I think the good times are over for Asia," said Masaru Hamasaki, a strategist for Toyota Asset Management in Tokyo, as he watched the Nikkei stock index plunge 9.6% on Friday, an even steeper drop than the 9.4% slide on Wednesday that was the worst in more than two decades. The catalyst for the sell-off was the losses on Wall Street, but the Nikkei was also dragged down by bankruptcy filings Friday by a life insurance company and a real estate investment trust in Japan.

While Japan's economy has been plodding along, the last few years have been one big economic party for much of the rest of Asia. Fueled by China's spectacular growth and American consumers' insatiable demand, the region's exports of commodities, computers and clothes soared. Asian currencies largely appreciated, and foreign capital inflows pushed stocks to stratospheric levels.

Not anymore. With foreign investors retreating, stock markets in the region have suffered some of the worst drops worldwide. Indonesian authorities indefinitely halted trading Friday after two days of 10%-plus declines. Currencies have fallen, most notably in South Korea. Singapore joined New Zealand in entering recession; experts say Japan is probably there already and Hong Kong not far behind.

"The world is caught up in a financial storm, and dark clouds fill our immediate horizon," Singaporean Prime Minister Lee Hsien Loong said Friday. Singapore's economic activity shrank 6.3% in the third quarter on an annualized basis, after falling nearly as much in the second. The key culprit, analysts said, was reduced output of electronics, pharmaceuticals and other goods.

The story of weakening manufacturing is the same everywhere. Even in China a growing number of factory owners are reporting drop-offs in overseas orders.