Japan called on Group of Seven nations to work closely to counter market turmoil and Asian officials sought to calm investors as stocks slumped on concern the U.S. recovery is faltering.
The G-7 needs “very close cooperation in coming weeks,” Japanese Finance Minister Yoshihiko Noda said in Tokyo, where the Topix index fell to a two-year low. Hong Kong financial official K.C. Chan urged investors to “stay calm” and not be “spooked by the market,” as the Hang Seng Index slumped 3.1 percent. In Beijing, Vice President Xi Jinping said his nation will avoid an economic hard landing.
Plunging equity markets are crushing consumer and business confidence, worsening the outlook for a global economy already hampered by the debt burdens of developed nations. Speculation that European banks may have insufficient capital and signs of weakness in the U.S. economy are helping to drive a stock rout that returned to Asia today.
“Business confidence is tailing off and global growth slowing, and Europe’s debt situation appears to be getting worse and worse without any coordinated policy response,” said Matt Riordan, who helps manage almost $6.6 billion in Sydney at Paradice Investment Management Pty. “The worst case is that you go back to a 2008-type financial crisis.”
In South Korea, the financial regulator urged insurers to boost capital in preparation for a potential crisis, and the benchmark Kospi index (KOSPI) plunged 6.2 percent, the most since 2008. South Korea’s exchange earlier said it temporarily halted program trading of shares on the Kospi after futures tumbled.
Asked how policy makers should respond to market turmoil, Noda referred reporters to an Aug. 8 pledge by G-7 finance ministers and central bank governors to “take all necessary measures to support financial stability and growth.” He didn’t specify any likely next step.
A past example of joint action is the intervention that temporarily weakened Japan’s currency after the nation’s March earthquake. Developed nations are hampered in stimulating their economies because of their debt burdens, and have limited or no room for interest-rate cuts after reductions that countered the financial crisis of 2008.
In Beijing, Xi told U.S. counterpart Joe Biden and business executives that global confidence must be rebuilt after “destabilizing factors” intensified. Xi said Biden briefed him on the steps America was taking to spur growth and tackle its deficit, with the Chinese leader expressing confidence in the U.S. economy’s resilience.
China’s benchmark Shanghai Composite Index closed 1 percent lower, down about 10 percent for the year.
In Hong Kong, Chan, the secretary for financial services and the Treasury, told Bloomberg Television that investors should “stay calm” and not be “spooked by the market.” Market volatility may persist as investors monitor the sovereign-debt crisis and the risk of a “double-dip” recession in the U.S., he said.
In Seoul, central bank official Min Sung Kee said that investors seem “too nervous” and are reacting “more than what I expected.” In a phone interview, Min, director general of the financial markets department, said that officials are “watching the markets 24 hours a day and we need to monitor the U.S. market more closely tonight.”
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net; Kate Andersen Brower in Washington at kandersen7@bloomberg.net
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