Equity Market Rout Early in Asia Fades; Nikkei Falls Below 10,000 (Updated)

There was a remote chance of a rebound rally (and I don’t mean anything jazzy) but the news that Bank of America, heretofore regarded as a sound institution (how with its credit card exposures and acquisition of Countrywide is beyond me) will cut its dividend by 50% and raise $10 billion to bolster its balance sheet only worsened the already dark mood among financial players. Consider the illogic of this move: the Charlotte bank’s earnings this quarter were 15 cents per share, but even with the dividend cut, the quarterly dividend, payable in December, will be 32 cents a share. So the fundraising will go in part to maintain the dividend. This passes for prudential management in the US.

Some readers saw Jim Cramer’s widely reported call to sell stocks if you will need the money in the next five years as the sign of a market bottom. The very fact that many are still eagerly looking for a bottom means more blood has to be shed. I recall the bear market of the late 1970s. Stocks, battered after the bull market of the 1960s, had come to be seen as speculative and conservative investors were leery of them. Until stocks are viewed as the risky assets that they are, I’d be leery of saying the end of this bear market is nigh.

Note that Asian markets have bounced off their early morning lows, but are still in decidedly negative territory (save Singapore, down a comparatively cheery half a percent). The Nikkei is now slightly over 10,000.

Update 1:50 AM: Thing look less grim then they did a few hours ago, thanks to an unexpectedly large interest rate cut (100 basis points, from 7% to 6%) by the Reserve Bank of Australia. Aussie stocks and the currency rallied, and a fall in the yen gave some relief to the Nikkei (stocks and the yen tend to go in reverse directions). From Bloomberg:

Asian stocks fell on concern surging credit costs will deepen a global slowdown. Shares pared losses and U.S. futures gained after an Australian interest-rate cut spurred speculation more central banks will follow…. Australia’s benchmark index rallied from an earlier loss after the central bank cut interest rates by the most since 1992…

The MSCI Asia Pacific Index fell 0.5 percent to 99.91 as of 1:33 p.m. in Tokyo, paring a 3.2 percent loss. Industrial shares and companies reliant on consumer spending contributed the most to the decline…

Japan’s Nikkei 225 Stock Average lost 1.7 percent to 10,300.59, having earlier dipped below 10,000 for the first time since December 2003. In Thailand, the SET Index sank 1.4 percent after police fired tear gas to disperse protestors at the parliament building. Hong Kong is closed for a holiday.

Update 3:00 AM: An important observation from Times Online:

Ashley Davies, currency strategist with UBS in Singapore, wrote in a note: “The key issue is coordination of policies, since individual country policies aimed at shoring up confidence of domestic institutions can actually exacerbate systemic risk by altering relative risk between countries.

“As such, a coordinated global approach by the major financial powers may be critical to containing the destructive aspects of global deleveraging.”

There is not yet any evidence that rate cuts will be coordinated, but that could change very quickly.

Back to the earlier story. From Bloomberg:

Asian stocks slumped, extending a global rout, on concern the seizure in credit markets will deepen a global economic slowdown…

“I’m shocked by the speed at which the global economy has deteriorated,” said Roger Groebli, Singapore-based head of financial market analysis at LGT Capital Management, which oversees about $20 billion. “It’s happening at a speed that I have never seen. It’s a global capitulation and everyone is throwing in the towel.”

The MSCI Asia Pacific Index fell 1.9 percent to 98.55 as of 11:09 a.m. in Tokyo, a fourth-straight decline. Nine of the gauge’s 10 industry groups dropped. The measure tumbled 22 percent in the third quarter as the credit crisis forced Lehman Brothers Holdings Inc. into bankruptcy.

Japan’s Nikkei 225 Stock Average lost 3.1 percent to 10,148.46, having earlier dipped below 10,000 for the first time since December 2003. Mitsubishi Corp., which generates more than half its profit from trading commodities, declined 4.7 percent after metals tumbled.

All stock markets in the region fell. South Korea’s Kospi Index slid 1.3 percent and the won weakened to below 1,300 per dollar for the first time since 2002, on speculation investors will steer clear of emerging-market assets. In Thailand, police fired tear gas to disperse protestors at the parliament building, state television reported.