From Tokyo to Mumbai, Asian stocks plunged by record amounts this year as the region's powerhouse economies lost steam and foreign investors pulled billions of dollars from its once-booming markets. Dizzying losses felt around the world were all the more painful in Asia, whose stocks had long been seen as a safe haven from financial turmoil in the West - another myth that burst along with the housing, credit and commodities bubbles in the global crisis of 2008. In many cases, markets that benefited most during a bull run that gathered momentum from 2006 were hit hardest as it ended. In China, the benchmark Shanghai Composite Index plummeted 65 percent - its largest-ever annual drop - becoming the year's second-worst performing market after Russia, where a key index fell about 72 percent. The Shanghai index had soared more than 300 percent over 2006 and 2007. Japanese shares also suffered their biggest yearly decline, with the Nikkei 225 dropping 42 percent as world's second-largest economy slid into recession. That outpaced a 39 percent decline in 1990 after Japan's so-called “bubble” economy of the 1980s burst. In Hong Kong, also in recession, the Hang Seng Index closed the year 48 percent lower, its second-biggest drop to date and its worst since the global oil shock of the early 1970s. India's main index in Mumbai retreated about 52 percent. “It was ferocious, it was an unprecedented move down,” said Lucinda Chan, director of the private wealth division at Macquarie Securities in Sydney. “The domino effect was so quick and so swift.” Major Western benchmarks were down far less, with the Dow off nearly 35 percent and Britain's FTSE 100 slipping 32 percent. As a whole, Asia fell harder than most other regions as measured by two key MSCI Asian stock indices, both down more than 52 percent for the year. Averages for Group of Seven major developed countries and global stocks lost a little over 40 percent of their values; Europe dropped almost 48 percent. Sputtering growth in Asia's export-driven economies was a big reason for the region's decline, analysts say. As a meltdown of the US housing market mushroomed into a global slump in consumer spending and industrial production, foreign firms yanked billions from Asia to repay debts back home and funds liquidated their holdings to meet redemptions. At the country level, the pace of initial public offerings that fueled rises in mainland China and Hong Kong bourses fell off. A surging yen added to the woes of Japanese mega exporters such as Toyota Motor Corp. - down more than half for the year - and Sony Corp. - down 60 percent. Political upheaval weighed on Thailand's market. Some of the damage was self-inflicted - shares in companies that lost big on hedging contracts, such as Hong Kong conglomerate Citic Pacific Ltd., were punished as a result. But markets across the region may have been bound to fall short of the lofty expectations set by investors who bid valuations ever higher as they rushed to cash in on Asia's emerging market boom. “No one saw an end to the bull run,” said Kirby Daley, senior strategist at Newedge Group in Hong Kong. “What many failed to see was an endgame to the leveraged world we were living in and an endgame to the consumption driven economy that the world had become.” Along the way, investors, big and small, got burned. In China, only 6 percent of the 25,000 investors participating in one survey reported this week said they had made a profit from stock trading in 2008. Nearly two-thirds said they had lost 70 percent of their investments or more, according to the survey by the Shanghai Securities News, a newspaper affiliated with the stock exchange. Many Asian hedge funds, meanwhile, took a drubbing and closed shop by the dozens, with their traditionally long bets on the markets' moves souring amid the furious sell-off. Whether 2008's lows, reached mostly in October and November, hold in 2009 is a matter of debate. But most investment strategists have written off any chance of a major rebound in at least the first six months of the new year, when company earnings could prove especially bleak. And there could be more violent swings if companies aren't done with the massive clean up of debt-laden balance sheets that began last year. Trillions of dollars in assets may still need to be shed in the global financial system because there may not be enough capital to shore it up, said Paul Schulte, a chief Asia equity strategist at Nomura International in Hong Kong. How China's economy shapes up will also be closely watched. Fourth quarter growth in 2008 is already forecast to drop to as low as 2 percent from nearly 12 percent in 2007. “China's economy is obviously at a turning point. There are too many uncertainties, and past huge losses have made investors increasingly cautious,” said Cheng Weiqing, an analyst at Citic Securities in Beijing. Asia's fortunes could depend greatly on the mood of consumers - especially in the US - whose appetite for cars, electronics and other goods have been the lifeblood of regional growth. Credit markets still haven't returned to normal. Traders are hopeful economy-boosting measures worth hundreds of billions of dollars by governments around the world will help on that front, bringing about some recovery by the second half. “The landscape has been completely changed,” said Chan of Macquarie. “People's confidence needs to be rebuilt, and that has to come through the stimulus packages around the world that are being put out by various governments.” Many still are bracing for even more selling. “For 2009, we will see a lot more pain in Asia,” said Daley, who doesn't see stock markets rebounding until 2010, at the earliest. “The desperate hunt for a bottom is futile, because when we get to the bottom, get used to it,” he said. “We're going to be here for a while.”
