Despite assurances on Monday by Standard and Poor's (S&P) that its downgrade of the credit rating of the United States would not have an immediate impact on Asia- Pacific countries, stocks in the region plunged as investors shied away from the market.
Shares in Japan fell 2.18 percent, or down by 202.32 points, while the markets in South Korea and China's Taipei dived 3.82 percent.
In China's Hong Kong, the Hang Seng Index plunged by more than 4 percent in the Monday morning trading, but regained some of its losses and ended the day 455 points down at 20,490, a loss of just over 2 percent.
On Friday, Asia's benchmark indexes, Tokyo's Nikkei index and Hong Kong's Hang Seng, plunged 3.7 percent and 4.3 percent respectively.
The Philippine Stock Exchange index shed 106.31 points or 2.4 percent to finish at 4,331.24. This was the worst single-day performance of the PSE since Feb. 10 this year when it slid by 2.7 percent.
According to Hans Sicat, PSE president, the Philippine market has reacted alongside other Asian markets to the S&P downgrade of the U.S. credit rating from triple A to double A-plus.
"The news has sent shivers across global financial markets and the Philippine market has behaved very much like its Asian and ASEAN neighbors, with a wave of consolidation," Sicat said.
In its Aug. 8 statement, the S&P said that although the U.S. downgrade has no immediate impact on the sovereign ratings of countries in the Asia-Pacific, the rating change, together with the weakening sovereign creditworthiness in Europe, did point to an increasingly uncertain and challenging environment ahead.
"Uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence," S&P said.
The rating agency said, however, that at the moment, the generally stable outlooks for Asia Pacific sovereigns (with the exception of New Zealand, Japan, Vietnam, and the Cook Islands) were supported by sound domestic demand, relatively healthy corporate and household sectors, plentiful external liquidity, and high domestic savings rates.
But given the interconnectivity of the global markets, an unexpectedly sharp disruption in developed world financial markets could change the picture, it said.
S&P said that the experience of the global financial crisis of 2008-2009 showed that export-dependent economies with large exposures to the U.S. and Europe would feel the most pronounced economic impacts.
"Specifically, Thailand, China's Taiwan, South Korea, Malaysia, the Philippines, Japan, Australia, and New Zealand are likely to experience export-driven slowdowns either through weaker demand or lower export prices, or both," it said.
The United States is the Philippines' biggest trading partner and the leading source of foreign investments.
The S&P said the adverse impact on Asia Pacific would likely require governments to use their balance sheets to support their economies and financial sectors once again.
In a report datelined Hong Kong, USA Today, a major American daily, also said that the U.S. downgrade could unnerve Asian economies, which hold massive piles of American debts.
The report said that China and other creditors remain worried that the downgrade could erode the value of their holdings.
China is the United States' largest foreign creditor, with 1.15 trillion U.S. dollars in Treasury securities, followed by Japan with 912.4 billion dollars. China's Taiwan holds 153.4 billion dollars and China's Hong Kong has 121.9 billion dollars in U.S. debt. The Philippines holds 23.6 billion dollars in U.S. securities.
The downgrade, the USA Today report said, is likely to accelerate Asian nations' efforts to diversify their currency reserves into holdings other than U.S. Treasuries. Asian nations accounted for more than half of the 4.51 trillion dollars in foreign holdings of Treasury securities.
In Manila, analysts and government officials have varied reactions to the U.S. downgrade.
Benjamin Diokno, an economics professor at the University of the Philippines and a former budget secretary, said that the downgrade would result in lower exports, slower remittances from overseas Filipino workers, and reduced foreign direct investments.
But Economic Planning Secretary Cayetano Paderanga said that the impact of the downgrade on the country's gross domestic product (GDP) would be relatively minor, only about -0.1 percent while the impact on overall sectors would be -0.5 percent.
Governor Amando Tetangco of the Bangko Sentral ng Pilipinas, the country's central bank, said that the situation on the long- term would stabilize and that interest rates in the Philippines " would likely remain stable."
Finance Secretary Cesar Purisima has a more positive view. He said that the Philippines could even benefit from the U.S. predicament since it could "lead to growth opportunities in emerging markets in the region such as the Philippines."