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Financial News

Jan 2008 Financial News

US recession fears sink global markets

Jan 22, 2008

Asian and European stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the United States government's stimulus plan to prevent a recession.

India's benchmark stock index tumbled 7.4 per cent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 per cent to 23,818.86, its biggest percentage drop since the September 11, 2001, terror attacks.

Investors dumped shares because they were sceptical that an economic stimulus plan President Bush announced Friday would shore up the economy, which has been battered by housing and credit problems.

The plan, which requires approval by Congress, calls for about US$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.

Another horrible day

Just last Wednesday, the Hang Seng index sank 5.4 per cent.

"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."

Japan's benchmark Nikkei 225 index slid 3.9 per cent to 13,325.94 points, its lowest close in more than two years. China's Shanghai Composite index plunged 5.1 per cent.

The sell-off continued in Europe. Germany's DAX was down 4.2 per cent in morning trading, France's CAC 40 slid 4.7 per cent, while Britain's FTSE 100 dropped 3.6 per cent.

"People are certainly nervous about a potential recession in the U.S. 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 per cent to 12,099.30, bringing its loss for the year so far to nearly 9 per cent.

Traders also have shrugged assurances from Federal Reserve Chairman Ben Bernanke that the U.S. 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 possible U.S. recession because increased trade and investment within Asia have made the region less reliant on the United States than in the past.

Excluding Japan, 43 per cent of Asia's exports go to other nations in the region, Lehman Brothers calculates, up from 37 per cent 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 per cent and Honda Motor Company sank 3.4 per cent.

Bank of China dropped

In Hong Kong, Bank of China dropped 6.39 per cent and China Construction Bank slid 7.83 per cent.

In Mumbai, India, the benchmark Sensex index fell 1,353 points, or 7.4 per cent - its second-biggest percentage drop ever - to 17,605.35. At one point, it was down nearly 11 per cent.

The decline hit companies across the board, with power utility Reliance Energy Ltd. falling 16.4 per cent. Major software company Tata Consultancy Services Ltd. slid 7.6 per cent

"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.

Still, Pai and others suggested that the declines could lead to a buying opportunity.

"The sell-off today takes us close to the bottom," she said.

Since the start of the year, Japan's Nikkei index has declined 13 per cent, while Hong Kong's blue-chip index is down more than 14 per cent.

Even China's Shanghai index - which nearly doubled last year - has fallen 6.6 per cent since the beginning of the year and nearly 20 per cent from its all-time closing high on October 16.

- AP

The Jamaica Gleaner
Tuesday | January 22, 2008