Jan 21, 2008 4:00 pm US/Eastern
Stock Markets Plunge Worldwide
LONDON (CBS News) ―
Overseas investors, gripped by fears of a U.S. recession, dumped shares over skepticism that an economic stimulus plan U.S. President George W. Bush announced on Friday would shore up an economy 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.
Stock markets across most of Asia fell Monday, following declines on Wall Street last week, and the bad news swept westward as European investors reacted.
France's CAC 40 plunged 6.1 percent, but it was not the only European market to see a significant drop.
Germany's DAX was down 6 percent in morning trading, while Britain's FTSE 100 dropped 5.1 percent.
"There's a lot of panic selling today," said Christoph Schmidt, analyst at N.M Fleischhacker Trading Bank in Frankfurt. "Most investors worked on the wrong foot. We expected some because of the holidays in the U.S., markets are closed. We are on a very close KLAPP year, no bad news from the U.S. But the Asian markets were pretty weak this morning. And all the selling pressure came over to Europe. And traders began to react emotionally to the markets.
"The next days are pretty decisive because we would all like to know how are the U.S. markets [are] going to react to this selling pressure we have in Asia and Europe," said Schmidt.
"Let's say that today, the markets across the world, and especially the French market, are undergoing a phenomenon of distrust in the markets that are leading them downward," Alain Crouzat, president of Montsegur Finance, told AP Television.
"Without a doubt the element that sparked this was in August with the sub-prime crisis which hit the assets linked to real estate loans by dubious creditors. Today we see that the liquidity and the need for liquidity are hitting all of the markets especially the stock market with a scenario looming of an economic crisis that can only amplify the phenomenon," he added.
An analyst in London says investors there have been following the Asian markets, which he says "have not been impressed" by the U.S. government's economic stimulus plans.
Foreign investors aren't wondering so much if a recession's looming, reports CBS News correspondent Richard Roth; they're now worrying how deep and how long it may be.
Asian markets were slammed this morning.
India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23 thousand 818.86, its biggest percentage drop since the September 11, 2001 attacks.
China's Shanghai Composite index plunged 5.1 percent. Markets in South Korea, Australia, Singapore, Taiwan and the Philippines also sank.
The general manager at Fulbright Securities in Hong Kong, Francis Lun, calls it "another horrible day." He says there's the feeling that the stimulus package in the U.S. is "too little, too
late."
A contraction in the American economy would likely hurt profits at Asian exporters, although rising trade and investment within the region has made Asia less dependent on the U.S. than in the past.
"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 that politicians are able to come up with a compromise and act sufficiently quickly," Cohen said. "I think the impact would be marginal anyway."
On Friday, the Dow Jones industrial average slid 0.5 percent to 12,099.30, and some analysts warned that the U.S. market could be in for a period of protracted declines.
Investors 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 support an economy pummeled by devastation in the housing and credit markets.
Japan's benchmark index is at its lowest close in more than two years.
"The Japanese market is probably the second-largest economy in the world but it is tied very closely to the United States," said CBS News correspondent Barry Petersen in Tokyo. "The fall of Japanese stocks is really a vote of 'no confidence' twice-over: once, a sense that the plan proposed by President Bush is not going to make any difference soon in the American market, and also a sense that with America slowing down, Japan's going to be in trouble as well."
Petersen said the Japanese market was already having problems of its own: "Prices for condominiums are coming down, [and] the national bank warning that perhaps the economy could be sluggish. Now it's a double whammy with what's going on in the United States."
The up-shot: The Japanese market is reacting to both factors - and is heading south.
Petersen said there is not much belief that China's booming economy would cushion the blow if America is in trouble.
With U.S. markets closed for the Martin Luther King Jr. holiday, it will be another day to see how the bad news sweeping westward will affect Wall Street. But today, in Canada, the news was not good. The Toronto stock market was down more than 600 points.
ScotiaMcLeod analyst Gareth Watson says what we're seeing today will be an ongoing theme through this reporting season in North America, calling it a "show me" market.
He says investors aren't willing to look at anything until they see proof that results are good and expectations going forward are at least reasonable.
For things to improve, he says credit markets have to return to normal and borrowing has to become easier.
Watson says we're going to have to see corporate data coming in that's less than disastrous, but that will only happen over time.
He says that's making it hard to predict where the bottom is for the market.
Watson adds the market lacks confidence and it could take a minimum of six months to get it back.
Until that happens, he says people aren't expecting a sustainable rally.
But some strategists say Asian markets are now oversold and will rebound as investors snatch up stocks that have fallen to attractive levels.
"We hold our view that the rapid correction in the past two weeks is offering a good opportunity to buy quality stocks," Taifook Research in Hong Kong said in a note.
(© 2008 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
