Is The Yen Carry Trade Reversing ?

Worry Not The Fall Of The Dollar, Beware The Rise of The Yen

A new high of the Japanese Yen against the US Dollar eclipsed stock markets across Asia, as the Yen Samurai's seemed to be returning home.

Meanwhile Investment Bank Morgan Stanley was tipping a worst case estimate for the BSE Sensex at 11000 by December 2008, while Kotak Securities forecast upto 2 bad years for stock markets as their worst case scenario.

Asian markets tumbled Monday, with Japanese stocks suffering heavy losses on exporters as the dollar weakened further against the yen, while steelmakers plummeted on fears its annual profit could fall below an earlier forecast.

The region's financials also took a dive on concerns about the financial markets and a U.S.
recession.

The Nikkei 225 Average fell 4.5% to end at 12992.18. It was the index's first close below 13,000 since Jan 23. The broader Topix index, which includes all shares on the exchange's first section, 4.01% to finish at 1271.15.

Japanese stocks were also pushed down by the dollar's slide against the yen, particularly
worrisome for the country's export-oriented economy. Exporters lose competitiveness overseas with a stronger yen, which also reduces the value of repatriated earnings. The dollar bought 103.17 yen Monday, down from 103.96 yen late Friday in New York.

Exporting companies bore the brunt of the selling. Honda Motor fell 5.8%, while robotics maker Fanuc skidded 8.7% and TDK slipped 6.5%. U.S. slowdown worries also dragged down steel makers. JFE Holdings dropped 8.6% and Nippon Steel tumbled 6.8%.

Financial shares fell on signs of continued global weakness in the sector after American
International Group announced the worst quarterly loss in its history Friday due to a write-down of troubled mortgage securities. Mizuho shed 5% and Mitsubishi UFJ Financial Group fell 4.7%.

In Hong Kong, the Hang Seng Index shed 2.8% to 23655.70. Shares of HSBC lost 1.7%, ahead of its annual results announcement. The banking major is expected to post a 15% growth in net profit to $18.19 billion.

Shares of Ping An Insurance (Group) of China sank 3.5% in Hong Kong and 1% in Shanghai. The drop came after Reuters reported that a total of 3.12 billion shares of the insurer, worth a combined 222 billion yuan ($31.27 billion), were freed up for trade Wednesday, after a one-year lockup period that followed their Shanghai listing in early
March 2007. The report added that Huludao Zinc, an institutional investor owning 2 million shares in Ping An, has 'decided to empower our board to sell an appropriate time to sell Ping An shares on the open market.'

China's Shanghai Composite rebounded from early lows and was recently 1.8% higher at 4425.32, on reports that the Chinese regulators Friday approved the creation of more mutual funds to strengthen the market.

Bearish sentiment toward the Australian share market intensified Monday as traders reacted
negatively to a disappointing earnings period and bearish developments on Wall Street, while also expecting an interest-rate rise from the Reserve Bank of Australia after its board meeting Tuesday.

The benchmark S&P/ASX 200 closed down 166.3 points or 3% at 5405.8 after hitting a six-week low of 5393.9. Banks were hardest hit, with Commonwealth Bank of Australia falling 5.1% and National Australia Bank falling 5.8%. Analysts issued warnings on the banks as funding costs blew out in response to the credit crunch and as the risk of default from the likes of Allco remained high. 'We see more downside near term given heightened
earnings risk and expect prices to remain volatile given global markets,' said UBS analysts.

India's benchmark stock index slid more than 3.7% in early trading, tracking losses in other Asian markets. The Bombay Stock Exchange's 30-share Sensex index had dropped more than 657 points to 16921.40 Monday morning.

The decline in the regional markets came during continued turmoil in the global financial markets and expectations of a U.S. recession. In a note to clients Monday, UBS economist Maury N. Harris wrote a recession was under way in the U.S., which could help cool inflation.

'If even a mild recession is under way, with the employment rate up to around 6% by later this year [as we expect], then it is likely just a matter of time before inflation slows,' said Mr. Harris.

Mr. Harris said UBS now forecast a reduction in the Fed funds rate to 2% by midyear, from 3% at present, including a half-percentage point cut at the next Federal Open Markets Committee meeting on March 18.

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.