Recession panic grips world markets
(The Philippine Star) Updated September 24, 2011 12:00 AM Comments (75)
MANILA, Philippines - World markets buckled under a frenzied sell-off
Thursday as investors panicked, believing the global economy was headed
for another slump that policymakers may be ill-equipped to prevent.
From New York to Tokyo, it was a brutal day for investors as countless
billions of dollars were wiped off the value of companies globally.
In Manila, the benchmark 30-company Philippine Stock Exchange index
(PSEi) settled at its lowest level in three years as investors turned to
safer US dollar and government bonds. The peso, meanwhile, briefly
touched the P44 to $1 level before recovering at P43.58 from Thursday's
P43.77.
The PSEi plummeted 210.14 points or 5.13 percent to close at 3,885.96,
logging its biggest drop since Oct. 27, 2008.
The 30 firms that make up the Dow Jones Industrial Average alone lost
$103 billion of their value or around 3.5 percent while major indexes in
Europe, Asia and Latin America commonly suffered losses of around five
percent.
The seeds for the turmoil appear to have been planted Wednesday, when
the Federal Reserve warned an already tepid US recovery faces serious
risks, even as the bank appears to be running low on policy remedies.
"It's the ever-increasing threat of another recession that is really
spooking investors," said analyst Simon Denham at Capital Spreads.
But concern about the fate of the world's largest economy only
heightened long-running fears that key pillars of the global economy are
cracking under the strain of debt and slow growth.
The Dow lost 391 points to finish the day at 10,734, a level only seen
once in the last year.
London's FTSE-100 index closed down 4.7 percent, Brazil's Bovespa was
down 4.8 percent and Hong Kong's Hang Seng closed down 4.9 percent to
its lowest finish since July 2009.
As representatives from the world's major economies gathered in
Washington for a regular meeting of the G20 and the International
Monetary Fund (IMF), there were increasing doubts that Europe can
overcome political difference and decisively tackle its long-running
debt crisis.
"Bad economic news from the United States and Europe, compounded by
political paralysis and the risk of a serious policy mistake, continues
to roil markets," IHS chief economist Nariman Behravesh and IHS Global
Insight economist Sara Johnson told clients.
The heads of the World Bank and IMF warned that Europe and the US risked
"suffocating" the global economy if they did not get control of their
economies.
Danger zone
World Bank president Robert Zoellick called for action, warning: "The
world is in a danger zone."
The IMF's Christine Lagarde said that risks to the global economy had
increased, "but there is a way forward, if countries act now, act
boldly, and act together."
But across the globe investors voted with their feet, pumping money into
perceived safe-haven assets, notably the dollar and US government debt.
The euro fell to its lowest level since January against the dollar, at
$1.3462 at 2130 GMT, while the yield on the 10-year Treasury note sank
to a new record low, indicating sky-high demand.
Michael Hewson of CMC Markets said "European markets have plunged today
on a trifecta of different factors, starting with disappointment about
last night's measures by the Federal Reserve as well as its downbeat
assessment of the US economy."
He added that "fears about a slowdown in China on disappointing HSBC
manufacturing PMI, which contracted for the third month in a row, and
disappointing eurozone, French and German manufacturing PMI's data,"
also weighed on sentiment.
It was stocks that bore the brunt of that flight to safety.
Tokyo shed 2.1 percent and Shanghai lost 2.8 percent.
Jitters
In the Philippines, anxieties over the US sliding back into recession
and Italy and Spain heading for bailouts left shares tumbling.
The main composite index is now 10 percent below its end-2010 level with
global markets issuing a vote of no confidence in the management of the
world's two largest economies the US and the Euro zone. Year-to-date
loss has reached 7.5 percent.
All sub-indices were in the red, led by mining and oil which slid by
9.87 percent followed by property which lost 6.08 percent.
The broad All-Share index likewise plunged by 4.6 percent. Of the stocks
traded, 166 turned up losers as against 13 gainers, with 15 unchanged. A
total of 13.87 billion shares changed hands valued at P8.19 billion.
"Growing concerns on the global economic slowdown is scaring the market.
Most investors are worried that the recession fears will turn out to be
a nightmare for the market. Most opted to sell down the market and shift
to safer investment instruments," said Astro del Castillo, managing
director at First Grade Holdings Inc.
"The US is wrestling with its debt concerns and poor growth while
Europe's sovereign debt crisis threatens to bankrupt Greece and place
Italy in a similar position. For the moment, market performance hinges
largely on global issues but discerning investors should watch oversold
stocks, careful for signs of recovery," AB Capital Securities said in
its online market report.
Foreign investors remained on the sell side and posted a net selling
amount of P267.6 million. Among yesterday's top losers were Semirara
Mining, Philex Mining and Atlas Mining, Lepanto.
The most actively traded stocks were PLDT and Metrobank.
Meanwhile, volume at the Philippine Dealing & Exchange Corp. (PDEX) was
heavy at $964.84 million from $1.356 billion last Thursday.
Traders pointed out that central banks in the region including the
Bangko Sentral ng Pilipinas (BSP) have been intervening in the foreign
exchange markets to stem the decline in local currencies against the US
dollar.
The US Federal Reserve on Wednesday warned of significant risks to the
already weak US economy and launched a new plan to lower long-term
borrowing costs and bolster the battered housing market.
The US Fed announced it would sell $400 billion of short-term Treasury
bonds to buy the same amount of longer-term US government debt as part
of efforts to boost growth that slowed to a crawl over the first half of
the year.
Protectionism looms
In Washington, the WB's Zoellick said protectionism and populist
policies in the developing world could rise as countries face increasing
head winds from a growing European sovereign debt crisis and a weakening
economic recovery in the US.
Zoellick warned another crisis was building at a time when the budgets
of many developing economies had not fully recovered from the 2008
financial storm, adding to their fiscal strains.
He told Reuters in an interview more than half of developing countries'
budgets have deteriorated by two percent of gross domestic product since
2007, and more than 40 percent of developing nations now have government
deficits in excess of 4 percent of GDP.
"If the situation deteriorates further, then developing countries'
growth could turn down, their asset prices could drop and then their
non-performing loans could increase," Zoellick said.
"With these pressures and prospects we have to anticipate possible
protectionist pressures, beggar-thy-neighbor policies and a risk of a
retreat to populism," he added.
While he still believed advanced economies could avoid a double-dip
recession, Zoellick said his concerns were growing unless they acted
forcefully to tackle their problems.
"A crisis made in the developed world could become a crisis for
developing countries," he said. "Europe, Japan and the United States
must act to address their big economic problems before they become
bigger problems for the rest of the world. Not to do so would be
irresponsible."
Developing economies, he said, had grown more resilient over the past
decade and were in a better position to withstand another crisis but
they were still concerned about the spillover effects from troubled
advanced economies.
Some of the largest impacts to poorer countries would be felt through a
decline in global demand, which would affect trade and commodity prices.
Zoellick said $6.1 trillion was wiped out globally in stock market
declines over the past couple of months, which is equivalent to 10
percent of global GDP.
A meeting of finance leaders from emerging market economies China,
India, Russia, South Africa and Brazil in Washington on Thursday called
for 'decisive action' by advanced countries to tackle the deterioration
in their economies.
"The best role for the BRICS countries is the same as the best role for
any country, which is to focus on what they need to do at home to get
through the current financial dangers and to move on to long-term
growth," he said.
Zoellick said he was paying close attention to consumer and business
confidence in emerging economies. Zinnia de la Peña, Lawrence Agcaoili
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