Manic Monday
Written by Writer on Tuesday, October 7th, 2008
Compiled by BangkokPost.com from Agency reports
New York - Panic selling gripped stock markets worldwide on Monday and continued in Asia on Tuesday, as investors took a bleak view of the future. At one point, the Dow Jones fell 800 points, below 10,000 for the first time in four years.
Thai stocks fell by more than 6 per cent on Monday and the outlook for Tuesday was bleak.
“There is all-out panic,” said Adrian van Tiggelen, ING senior strategist in The Hague.
The Australian market opened the Tuesday trading day - and initial signs were bad. Sellers swamped the Australian stock market at the opening bell. The ASX 200 lost 142 points, or 3.1 per cent, to take the index to 4,398. The Australian dollar gave up 5 US cents in overnight trading to reach a two-year low of 72 US cents.
It was the same story in New Zealand, where the index gave up 79 points, or 2.6 per cent, to 2,969 at the opening.
Stocks in Tokyo continued their downward course on Tuesday. The Nikkei 225 Stock Average plunged below 10,000 for the first time in nearly five years, losing 486.62 points, or 4.65 per cent, to 9,986.47 by 9:19 am (7:19am Thailand time).
Even the 50-billion-euro ($68 billion) bailout of German bank Hypo Real Estate (HRE) and takeover of Dutch-Belgian bank Fortis by French giant BNP Paribas did little to ease turmoil.
New measures by governments in Europe and North America to stabilise the financial system failed to stop the panicky selloffs - in many cases record drops.
European Union leaders vowed in a joint statement to “take whatever measures are necessary to maintain the stability of the financial system” and the US Federal Reserve said it would pay interest on bank deposits for the first time in a bid to increase liquidity.
There was more panic in South America. Brazilian Finance Minister Guido Mantega said in no uncertain terms Monday that the current crisis in world markets is “perhaps the worst since 1929,” as he announced new measures adopted by President Luiz Inacio Lula da Silva’s government to increase access to loans for exporters.
“Brazil is not immune to the crisis, but this affects the countries with problems in their banks more, and countries like Brazil less,” Mantega said.
The Sao Paulo stock exchange - the largest in Latin America - had to suspend trading twice and fell by over 15 per cent before settling with a drop of some 13 per cent.
Sao Paulo, the largest stock exchange in Latin America, suspended trading just 18 minutes after the starting bell, after the leading index Bovespa fell over 10 per cent.
When trading resumed, stocks continued to fall in relation to the previous day’s closing, and the activity had to be suspended again, this time for an hour.
The Brazilian real also took a free fall against the dollar, prompting the Brazilian Central Bank to sell $2.5 billion in an effort to contain the local currency’s depreciation.
New York’s Dow Jones index skidded below 10,000 points for the first time since October 2004 as it quickly lost five percent after the open. At one point the index was down by more than 800 points, although bargain hunters jumped in late in the session early on Tuesday (Thailand time) and eased the pain.
London and Paris nosedived by more than eight percent and Tokyo closed at a new four year low.
The Stock Exchange of Thailand index dropped 6.4 per cent on Monday in what was believed to be the steepest fall in Asia as investors pulled money out of regional bourses. The SET Index ended at 551.80, down 38.25 points or 6.48 per cent.
“Foreign investors are playing a big role. They don’t mind if they make a loss; they just want money in hand,” said Adkinsons Securities analyst Mongkol Phuengphaetha.
Investors around the world have come to the sobering realization that the Bush administration’s $700 billion rescue plan won’t work quickly to unfreeze the credit markets. Global banks, hobbled by wrong-way bets on mortgage securities, remain starved for cash as credit has dried up.
That has sent stocks spiraling downward in the U.S., Europe and Asia, and driven investors to sink money into the relative safety of U.S. government debt. Fears about a global recession also caused oil to drop below $90 a barrel.
“The fact is people are scared and the only thing they’re doing is selling,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “Investors are cleaning out portfolios and getting rid of everything because nothing seems to be working.”
The selling was so extreme that only 98 stocks rose on the New York exchange - and 3,114 dropped. That’s a telling sign considering the stock market is considered a leading economic indicator, with investors tending to buy and sell based on where they believe the economy will be in six to nine months.
After a summit of the EU’s big four leaders in Paris at the weekend failed to bring about a significant breakthrough, member states’ leaders issued a joint statement on Monday vowing to defend banks.
The declaration said governments would defend financial stability by providing “liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.”
“While no depositors in our countries’ banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors,” it added.
“In taking these measures, European leaders acknowledge the need for close coordination and cooperation,” according to the text, which French President Nicolas Sarkozy read out on the steps of his office in Paris.
International Monetary Fund chief Dominique Strauss-Kahn said the IMF’s upcoming World Economic Outlook would show a marked fall in growth and warned the crisis could trigger famines in Africa and Latin America.
“The consequences may be extremely serious because they will be counted in terms of famine or malnutrition in children.”
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