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After a rally, stocks take U-turn down

(chinadaily.com.cn/agencies)
Updated: 2008-10-16 06:48

World stock markets resumed last-weeks' spiral, and made a U-turn after a massive rally on Monday, following the British governments buy-in of problematic private banks and Washington's intervention into Wall Street.

Asian stocks plummeted Thursday, with Tokyo's market plunging more than 11 percent, after another dive on Wall Street as worse-than-expected data about the US economy heightened fears of a global recession.

Tokyo stocks nosedived Thursday with the largest percentage loss in 20 years, on the sharp loss in New York and clouded global economic outlook.
The benchmark Nikkei-225 index plunged 1,089.02, or 11.41 percent to 8458.45 points. It's Nikkei's second largest single-day percentage drop, following a 14.90 percent drop logged on October 20, 1987.

"Sentiment is deteriorating very fast. People are losing what little confidence they have on a day-by-day basis," said Jacky Choi, a Hong Kong-based fund manager at Value Partners Ltd., which manages about US$5 billion in Asia. "Everyone is very worried about the economy in the US and around the world."

And shares in China's Shanghai stock exchange dived through the psychologically important 1,900-level in Thursday trading, as panic about a worsening crisis of the bleak global economy continued to unnerve Chinese investors.

The Shanghai composite industrial average of leading blue chips dropped 4.25 percent, to close at 1909.94, adding to Wednesday's 2 per cent fall following dire retail consumption data from the US, and worse-than-expected unemployment figures from around the world.

In Hong Kong, stocks moved down 767. 78 points, or 4.80 percent, to close at 15,230.52 on Thursday. Turnover moved up to 64.33 billion HK dollars ($8.30 billion) from Wednesday's 52.21 billion HK dollars ($6.73 billion).

The Dow Jones industrial average dived 733 points Wednesday, their second-largest point loss in history. Meanwhile the Japanese Nikke index plunged more than 10 percent after opening on Thursday.

Federal Reserve Chairman Ben Bernanke addresses the Economic Club of New York regarding financial markets in New York, October 15, 2008. [Agencies]

The huge volatility of the markets is a clear reflection of the rising fears of investors who have become very suspicious of the positive effects the Western governments' bailout efforts will have on the anemic world economy, which is feared to be headed into a deep recession.

World investors are now recognizing that the financial crisis, beginning at the Wall Street, is not the fundamental problem. It has merely amplified economic ailments that are intensifying everyday: losing jobs, vanishing paychecks, falling home prices and diminished consumer spending.

And there is just no relief in sight.

Positive market sentiment following bold government moves to stem the financial sector meltdown evaporated Wednesday and recession fears rose to the fore, sending shares slipping around the world after a two-day rally.

On Wednesday, the Chinese mainland's benchmark Shanghai Composite Index declined by 22.65 points, or 1.12 percent, to 1994.67, while the smaller Shenzhen Composite Index shed 4.92 percent to close at 524.70.

Hong Kong's Hang Seng Index lost 843 points, or 5 percent, to 15990 on Wednesday after rising more than 13 percent the previous two days. Markets in Australia, South Korea, and Singapore were also lower. Japan's Nikkei 225 index bucked the trend, however, paring its losses to end higher up 1.1 percent. The benchmark surged 14 percent in the previous session - its biggest single-day gain.

Recession fears returned after trillions of dollars pledged for bank bailouts from Europe to Asia helped allay fears of an imminent financial meltdown.

"We are not quite out of the forest, but at least the trees have stopped collapsing on us," said Henk Potts, equity strategist at Barclays Wealth.

"Investors are starting to realize that a systemic meltdown of the financial sector is less likely, but worries have shifted to macroeconomic concerns as many Western countries have glum 2009 GDP forecasts," he said.

EU leaders will meet in Brussels just days after stumping up 2.2 trillion euros ($3 trillion) to rescue European banks and jolt frozen money markets - at the heart of the worst financial crisis since the Great Depression - into life.

European leaders will press for an overhaul of the world's financial structures after Asia joined Western bastions of capitalism in bailing out banks to avert a financial meltdown.

Southeast Asian nations backed by Japan, South Korea, China and the World Bank were the latest to join the global rescue effort, agreeing Wednesday to create a multi-billion fund to buy bad debt and help banks. The World Bank committed $10 billion for the fund.

France's President Nicolas Sarkozy (R), who holds the EU rotating presidency, talks with Austria's Federal Chancellor Alfred Gusenbauer (L) and Luxembourg's Prime Minister Jean-Claude Juncker at the European Council summit in Brussels October 15 2008. Fears grew that the financial crisis will mutate into a worldwide recession with leaders calling for new global action to counter the economic slowdown. [Agencies]

But concerns remained that the rescue would come at a huge economic cost and do little to repair the damage already done by a 14-month credit crunch, which has slowed the economy.

As the markets dropped, regional leaders continued to grapple with the financial crisis and its impact on local economies.

A day after announcing billions in new spending to protect Australia's economy, Prime Minister Kevin Rudd accused Wall Street of "obscene failures" in corporate governance and blamed "extreme capitalism" for turmoil.

Agencies