Asian stocks rebound on heels of Fannie Mae and Freddie Mac bailouts
The U.S. government's move to rescue the financial institutions helps reassure investors.
SHANGHAI -- Asian stock markets, beaten down this year by the U.S. sub-prime crisis and faltering economy, roared back to life today after Washington announced plans to rescue troubled mortgage giants Fannie Mae and Freddie Mac.
Fund managers and analysts said that the government's move, though widely expected, reassured investors of the safety of the U.S. mortgage and financial system. Asia's central banks, which have been among the largest buyers of U.S. mortgage debt and securities, welcomed the bailout of the two large financial companies.
As well, state-owned and commercial lenders in Asia have substantial exposure to Fannie and Freddie, which provide funding for U.S. home loans and then bundle and sell them to investors around the world. Sunday's announcement "gave a big relief to investors in terms of potential big loss of holdings of Fannie Mae and Freddie Mac," said Lim Chang-gue, head of global investment at Samsung Investment Trust Management in Seoul.
He said a sharp rebound in bank shares today helped boost South Korea's main stock index by 5.3%, though it remains about 20% down for the year. Taiwan's stock market led the gains in Asia today, finishing up 5.6%.
Japan's Nikkei-225 stock average rose 3.4%, behind companies such as Sumitomo Mitsui Financial, which surged 15%. Other stock indexes, including Hong Kong, Singapore and Australia, gained more than 3%.
In Europe, stock markets also rallied today.
Mainland China's stocks continued their slide, however. Although shares of China's top state-owned banks, including Bank of China and Industrial and Commercial Bank of China, rose modestly today, the benchmark Shanghai composite index fell 2.7% to 2,143 -- the lowest since December 2006. The index is down 59% for the year.
"Today's drop shows that the market hasn't squeezed out its bubbles," said Cao Jianhai, researcher at the Chinese Academy of Social Sciences in Beijing. In 2006, the Shanghai index jumped 130%, and it doubled the next year. What's more, as trade and property markets have weakened recently, many investors have retreated to the sidelines waiting for the central government to initiate tax cuts or capital spending to stimulate the economy.
Economists in Asia said the U.S. government's takeover of Fannie and Freddie doesn't mean the U.S. housing market or economy would abruptly turn around, though it could help bring down mortgage rates for consumers and stabilize home prices.
