Asian stocks sink over US credit drop

A man walks past a display board showing the Hang Seng Index in Hong Kong

Source: Press TV
http://www.presstv.ir/detail/192869.html

Asian stock markets have plunged over fears of a global economic recession following last week's historic downgrade of the US credit rating by a leading financial agency.

Tokyo's Nikkei stock market fell 1.4 percent before making slight gains on Monday while Australia's S&P/ASX-200 index shed almost 2 percent in early trading, and indexes in New Zealand plummeted more than 3 percent, US-based ABC News reported.

According to the report, shares in South Korea also opened 1.4 percent lower.

In Hong Kong, the main share index opened more than 2.5 percent lower as markets dropped two percent in Singapore.

The uncertainty in global markets follows a fall in US futures prices, which was brought about after the Standard & Poor's credit rating agency (S&P) downgraded the United States' triple-A rating by one notch on Friday, from the top AAA to AA+, for the first time in the history of ratings amid concerns over the country's massive debt.

This comes as stock markets in major Arab countries also experienced a sharp drop in the value of shares due to fears that the decline of America's credit rating would pose an adverse effect on an estimated USD 1 trillion of Arab holdings of US treasury bonds.

On Sunday, the Saudi stock market rose slightly after diving 5.46 percent earlier, while all other Arab stock markets plunged.

The benchmark of the Dubai stock exchange plummeted 3.7 percent and Abu Dhabi's all-share index went down 2.6 percent while Kuwait's KSE index fell 1.6 percent and Egypt's AGX 30 index shed 4.2 percent.

Credit ratings agencies such as Moody's Investors Service and S&P cautioned Washington on August 3 to promptly reduce its debt-to-GDP ratio or it will otherwise face losing its triple-A rating.

Meanwhile, China's top ratings agency, Dagong Global Credit Rating Company, slashed the US credit rating from A+ to A, casting doubt on whether the federal government is capable of repaying its debt in the long term.

In Israel, the Tel Aviv Stock Exchange market plunged by seven percent in response to the downgrade of the US debt rating.

The Bank of Israel is concerned that the downgrade could harm Israeli exports because 28 percent of Israel's exports -- excluding diamonds -- go to the United States.

According to a recent default-preventing debt bill passed by the US Congress, the country's debt ceiling was raised by $2.4 trillion, to the level of $16.7 trillion, just a few hours before the August 2 deadline.

The bill was passed under public pressure, expressing intense displeasure over persistent bickering between the dominant Democratic and Republican parties over budget cuts and tax hikes and despite major reservations by members of both parties.

Some Democratic members of Congress described Republican refusal to give in to tax-hike demands for the wealthy as "terrorism" while Republicans slammed Democrats for threatening the US national security by also targeting the defense department for budget cuts.