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European, Asian Markets Spooked by Fears About U.S.

Economy

European, Asian Markets Spooked by Fears About U.S. Economy
(01/21/08 13:45) (CEP News) London – European and Asian stock indexes endured some of their biggest daily losses in recent times, as growing fears of a recession in the U.S. hit investor confidence on Monday. While the manifestation of the extent of bearish trends elsewhere could not be gauged in the U.S. itself, as markets there were closed for Martin Luther King Jr. Day, Asian stock indexes plummeted across the continental board. Tokyo's Nikkei closed down 3.85% or 535.3 points at 13325.94 with Japanese investors taking little comfort in U.S. President George W. Bush's comments about emergency measures to prop-up the economy on Friday. Hong Kong's Hang Seng endured its worst daily fall since the 9/11 terrorist attacks, closing down 5.49% or 1383.01 points at 23818.86. In Seoul, the KOSPI plummeted below the psychological 1700 mark, shedding 2.95% of its value or 51.16 points, ending the day at 1,683.56. At the same time, the country's tech-heavy Kosdaq market closed down 14.45, or 2.17% at 651.87. Park Hyong-ki, reporter for the Korea Times said, "Korean analysts believe that a loss on Wall Street of Friday froze general sentiment on the main bourse with global investors driven by concerns over a possible ratings cut of MBIA and Ambac Financial Group, two biggest bond insurers in the U.S." Elsewhere, Singapore's Straits Times index closed down 6.03% or 187.10 points at 2917.15 and China's CSI 300 Index closed down 4.96% or 268.73 points at 5145.73. In Australia, the S&P/ASX 200 Index closed down 2.9% or 166.90 at 5580.40, while the All Ordinaries Index closed down 2.91% or 168.50 at 5,630.90. Richard Koo, Chief Economist at Nomura Securities, felt that the U.S. recession speculation had directly affected stock markets in all nations. "In Japan, where many stocks are sensitive to cyclical fluctuations and the government has neglected to do anything about the slump in domestic demand, US recession worries joined with concerns about a rising yen to prompt a major sell-off of equities," Koo said. The market malaise spread to the Indian subcontinent as well. While Pakistan's Karachi KSE-100 ended the day down a mere 0.18% or 24.51 points at 13850.03, Indian stocks took a major hit. The country's benchmark Bombay BSE Sensex closed down a massive 7.41% or 1408.35 points at 17605.35. In terms of market capitalization, investors lost over $170 billion in a single day on the Indian market and close to $300 billion in the past six trading sessions in India when the current downtrend began according to New Delhi Television (NDTV). K Ramachandran of BNP Paribas felt that it could take a few sessions for the market to settle down. “However, markets look good on a fundamental basis. There is no reason why the retail investors should not get in. The Indian markets on the whole will deliver good returns in the times to come,” he told NDTV. Nicole Elliott, Senior Analyst at Mizuho said, “Since January, the (BSE) Sensex has plummeted
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European, Asian Markets Spooked by Fears About U.S. Economy

around 13%, which is in line with other global indices such as the Hang Seng. There is a major credit crunch going around the globe and India is a part of this phenomenon,” she said. In Europe, London's FTSE 100, like many Asian Indexes, suffered its worst day since 9/11, closing down 5.48% or 323.5 points at 5578.20, wiping off $163 billion of its value. Concurrently, the Paris CAC40 closed down 6.83% or 347.95 points at 4744.45 while the Frankfurt DAX closed down 7.16% or 523.98 points at 6790.19. Bearish trends were mirrored across Europe with Zurich’s SMI down 5.26% or 404.84 points at 7287.14, Madrid IBEX down 7.54% or 1029.60 point at 12625.80 and Brussels Bel 20 down 5.48% or 202.65 points at 3492.48. Elsewhere in Europe, the Amsterdam AEX closed down 6.14% or 27.63 at 422.45 and Moscow RTS closed down 7.38% or 159.27 at 1999.83. Justin Urquhart-Stewart, Director at Seven Investment Management, said, "From the resolute equity markets of only a year ago, all the confidence and enthusiasm seems to have been totally dissolved." "Equity portfolios, that were supposed to be wonderful manifestations of structured investment construction, seem to have been reduced to a pile of broker’s apologies. For those who had already diversified away from equities then at least some of the damage will have been mitigated – and for those who have been building up their cash reserves then there will come a valuable moment when they will be able to buy equities again – but at a far better price," he added. "However, for the moment, with the seemingly continuous belts of weather fronts bringing in more rain bands from the Atlantic, our equity markets will continue with their somewhat depressing meteorological behaviour for the time being," Urquhart-Stewart concluded. Looking ahead, Jeremy Batstone-Carr, Director of Private Client Research at Charles Stanley, said, "Although most independent economic forecasters are still mulling over the recession question, futures pricing indicates that market operators are looking for an aggressive “V” shaped recovery over the second half of this year and into 2009. Equity markets are likely to forecast the trough in the macro environment and then recover strongly." "That seems to be where cozy consensus lies at present, with investors hunkered down with capital preservation, a focus on income generation, low beta defensives, etc. until the storm passes. At that point hedge funds will cover their short positions and high beta, cyclicals and financials will whirl higher again," he continued. "Whilst we agree that lower base rates will certainly help pave the way for a recovery we are far less convinced that the recovery will be anything other than a pretty feeble affair. Futures pricing pays scant, if any, attention to financial market history. What we knew all along and most are now waking up to is that this is not a mere mid-cycle recovery or “soft landing” this is an atypical recession the aftermath of which could leave the US growing at a sub-trend rate for many years to come. What we are now witnessing is the end to an unprecedented asset price bubble and the bursting of an equally unprecedented period of credit creation," Batstone-Carr concluded. By Gaurav Sharma, gsharma@economicnews.ca, edited by Nancy Girgis, ngirgis@economicnews.ca (END) ©CEP Newswires - ©CEP News Ltd. 2008. All Rights Reserved. www.economicnews.ca

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