Markets plunge amid US pessimism
From The Age, Australia
January 22, 2008 - 7:03AM
European, Asian markets plunge amid pessimism
By Toby Anderson
LONDON, Jan 21 AP - European stock markets took a heavy battering today, with losses of more than 5% in many centres as investors sold off on concerns the US economy will fall into recession.
Europe's dark day followed sharp falls worldwide yesterday after declines on Wall Street amid investor pessimism over the US Government's stimulus plan.
US markets were closed, but the downbeat mood from last week's market declines there circled the globe. London's benchmark FTSE-100 dropped 4.7% to 5625.20, France's CAC-40 Index plunged 5.9% to 4793.39, while Germany's blue-chip DAX 30 slumped 6.74% to 6821.42.
That followed a 2.9% drop in the Australian shares yesterday, the 11th consecutive day of losses that have wiped $168 billion from S&P/ASX 200 stocks.
In Asia, India's benchmark stock index tumbled 7.4%, while Hong Kong's blue-chip Hang Seng index plummeted 5.5% to 23,818.86, its biggest percentage drop since the September 11, 2001, terror attacks.
Canadian stocks fell as well, with the Toronto exchange down 4.8%.
Investors dumped shares because they were sceptical that an economic stimulus plan US President George Bush announced Friday would shore up the economy that has been battered by problems in its housing and credit markets. The plan, which requires approval by Congress, calls for about $US145 billion ($165.27 billion) worth of tax relief to encourage consumer spending.
"We've taken our lead from the Asian markets who have not been impressed by the US. There's debate if there's going to be a recession in the US. I don't think there's much chance of that, though," said Richard Hunter, an analyst at Hargreaves Lansdown Stockbrokers in London.
Concerns about the outlook for the US economy, a major export market for Asian companies, has sent the region's markets sliding in 2008. Just last Wednesday, the Hang Seng index sank 5.4%.
"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Today it's because of disappointment that the US stimulus (package) is too little, too late and investors feel it won't help the economy recover."
Japan's benchmark Nikkei 225 index slid 3.9% to close at 13,325.94 points, its lowest close in more than two years. China's Shanghai Composite index plunged 5.1%, partly on worries about mainland Chinese banks' exposure to risky US mortgage investments.
"People are certainly nervous about a potential recession in the US spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.
"Maybe there's still some wariness about politicians are able to come up with a compromise and act sufficiently quickly" on a stimulus package, Cohen said. "I think the impact would be marginal anyway."
Investors took cues from the negative reaction to the president's plan on Wall Street on Friday, when the Dow Jones industrial average slid 0.5% to 12,099.30, bringing its loss for the year so far to nearly nine%.
Traders also have shrugged off assurances from Federal Reserve Chairman Ben Bernanke that the US central bank is ready to act aggressively - which means a likely big interest rate cut later this month - to help the sagging economy.
Some analysts predict that Asia won't suffer dramatically from a US recession because increased trade and investment within Asia has made the region less reliant on the United States than in the past. Excluding Japan, 43% of Asia's exports go to other nations in the region, Lehman Brothers calculates, up from 37% in 1995.
But today, uncertainty and pessimism reigned.
In Tokyo trading, exporters got hit hard, partly because of the yen's recent strength against the dollar. Toyota Motor Corp lost 3.3% and Honda Motor Co sank 3.4%.
Shares of Bank of China dropped 6.4% in Hong Kong after the South China Morning Post newspaper reported that the bank is expected to announce a "significant writedown" in US sub-prime mortgage securities, citing unidentified sources. In Shanghai, the bank's stock declined 4.1%.
India's the benchmark Sensex index fell 1,353 points, or 7.4% - its second-biggest percentage drop ever - to 17,605.35 points. At one point, it was down nearly 11%.
Since the start of the year, Japan's Nikkei index has declined 13%, while Hong Kong's blue-chip index is down more than 14%. Even China's Shanghai index - which nearly doubled last year - has fallen 6.6% over the same period and nearly 20% from its all-time closing high on October 16.