21
Jan
08

Global markets plunge on US recession fears

LONDON (AP) : European and Asian stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government’s stimulus plan to prevent a recession.
 
The U.K. benchmark FTSE-100 dropped 3.9 percent to 5,673.1; France’s CAC-40 Index plunged 4.5 percent to 4,861.2, while Germany’s slumped 5.35 percent to 6,922.7.
 
In Asia, India’s benchmark stock index tumbled 7.4 percent, while Hong Kong’s blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.
 
Investors dumped shares because they were skeptical that an economic stimulus plan President George W. 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 $145 billion worth of tax relief to encourage consumer spending.
 
Concerns about the outlook for the U.S. 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 percent.
 
“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 U.S. stimulus (package) is too little, too late and investors feel it won’t help the economy recover.”
 
Wall Street: Waiting for the pain to end
 
Japan’s benchmark Nikkei 225 index slid 3.9 percent to close at 13,325.94 points, its lowest close in more than 2 years. China’s Shanghai Composite index plunged 5.1 percent, partly on worries about mainland Chinese banks’ exposure to risky U.S. mortgage investments.
 
Some analysts predict that Asia won’t suffer dramatically from a U.S. 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 percent of Asia’s exports go to other nations in the region, Lehman Brothers calculates, up from 37 percent in 1995.
 
But on Monday, 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 percent and Honda Motor Co. sank 3.4 percent.
 
Shares of Bank of China dropped 6.4 percent in Hong Kong after the South China Morning Post newspaper reported that the bank is expected to announce a “significant writedown” in U.S. subprime mortgage securities, citing unidentified sources. In Shanghai, the bank’s stock declined 4.1 percent.
 
I ndia’s benchmark Sensex index fell 1,353 points, or 7.4 percent – its second-biggest percentage drop ever – to 17,605.35 points. At one point, it was down nearly 11 percent.
 
The decline hit companies across the board, with power utility Reliance Energy Ltd. (RELF.F) falling 16.4 percent. Major software company Tata Consultancy Services Ltd. (TACSF ) slid 7.6 percent
 
“A gloomy U.S. climate has affected the global markets. Even if those markets recover, it will take some time for the recovery to reach India because today’s fall has been so drastic,” said Jayant Pai, of the Mumbai investment company IL&FS Ltd. 
 

World shares tumble as Bush fails to calm US recession fears 

Global stock markets plunged Monday, with Tokyo tumbling to its lowest level in more than two years as US President George W. Bush’s tax plan to revive the world’s largest economy disappointed investors.
After heavy losses in Asian trade, it was the turn of the European markets to suffer, with the main bourses posting losses of between three and five percent by midday as investors headed for the exits, dealers said.
They said that after high hopes that Bush would announce strong measures to prevent the US economy going into recession, the markets did not find enough to offset all the bad news coming through on the banks and the collapse of the US housing market.

The foreign exchange market, however, reacted calmly and some dealers described the shares sell-off as another short-lived, knee-jerk reaction which offered a buying opportunity.
“If (US) interest rates are cut to the extent we and other expect, the likelihood is that today’s share prices will look like silly values in 12 month’s time, if not before,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities.

 Markets were reacting to Bush’s plan announced last Friday for 140 billion dollars (97 billion euros) in temporary tax cuts and other measures.

RISK AVERSION
Such falls on equity markets sometimes signal to large investors that it is time to buy. But leading investment bank Morgan Stanley said on Monday that was not the case now, at least as far as Europe was concerned.

“We are not compelled to buy yet despite bearish sentiment,” its European equity strategy team said in a note. “We continue to prefer cash over equities.”

Recent polls show institutional investors with large cash holdings, a sign of deep concern about the future direction of assets.

The global equity market rout, meanwhile, promoted currency investors to liquidate risky positions, lifting the low-yielding Japanese yen while the dollar gained on the view no country will escape the economic downturn.

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