Stocks in Asia, Europe tumble: Concern over possible slowdown in Chinese, US economies
LONDON, Feb 28: Shares in Europe and Asia fell for a second day on Wednesday amid jitters about possible slowdowns in the Chinese and US economies. However, Chinese stocks bounced back after their biggest decline in a decade on Tuesday.
European indexes finished lower even after US markets gained ground, following the previous session's 416-point plunge in the Dow industrials, as investors found some comfort in US Federal Reserve Chairman Ben Bernanke’s comment that no single trigger was responsible for Tuesday's sell-off.
Analysts said the sell-off was most likely a correction to cool overheating markets.
“There is definitely a case for a market correction but as of yet I would not worry about the economic impact,” said Holger Schmieding, chief European economist at Bank of America in London. “This is not something to worry about. There are little ramifications beyond the markets being immediately affected.”
In Britain, the benchmark FTSE-100 Index dropped 1.8 per cent to close at 6,171.50, while France's CAC-40 fell 1.3 per cent to 5,516.32 and Germany's DAX Index slid 1.5 per cent to 6,715.44.
The sell-off was more pronounced in Asia, with indexes in Japan, South Korea, Singapore, Malaysia, India and Australia sliding more than two per cent after Wall Street suffered its worst day on Tuesday since the Sept 11, 2001, terrorist attacks.
Japan's Nikkei-225 stock index tumbled 2.85 per cent to 17,604.12, while Philippine stocks plunged 7.9 per cent, their worst drop since 1997, at the height of the Asian financial crisis.
Major US indexes fluctuated at the opening of trading, but Mr Bernanke, testifying before Congress, appeared to calm the market. By midday in the US, the Dow Jones industrials were up 0.34 per cent at 12,258.14. The Standard & Poor's 500 index rose 0.48 per cent at 1,405.72 and the Nasdaq composite index gained 0.28 per cent to 2,414.71.
Analysts warned, though, that markets would likely remain volatile for a while.
“We don't need to worry about a big reduction from here, but this correction could continue for the next couple months,” said Shinichi Ichikawa, an equity strategist with Credit Suisse in Tokyo.
Meanwhile, China's Shanghai Composite Index bounced back 3.9 per cent to close at 2,881.07, rebounding from its 8.8 per cent plunge on Tuesday -- its biggest drop in a decade -- which triggered the global sell-off.
Bullish comments in China's state-controlled media appeared to reassure anxious domestic investors, who account for virtually all trading.
China will focus on ensuring financial stability and security, the official Xinhua News Agency cited Premier Wen Jiabao as saying in an essay due to be published in Thursday's issue of the Communist Party magazine Qiushi.
Authorities also denied rumours of a 20 per cent capital gains tax on stock investments -- speculation on which played a role in Tuesday's plunge.
But many analysts cautioned against focusing only on China's role.
“The sell-off in equities cannot be blamed wholly on China. This is case of the market flying too close to the sun, and the hot money collapsing,” said Torben Krogh Nielsen, an analyst with Saxobank. “It's a correction that's been seven months coming.”
“If there's a larger message behind all this, it's that the era of cheap money is over and you can't blame China for that,” concurred David Karsboel, head of market strategy for Saxobank in Copenhagen, Denmark.
Some investors used the drop as an opportunity to go bargain-hunting. Malaysian stocks, after falling as much as 8.2 per cent, closed down 3.3 per cent. Australian stocks closed down 2.7 per cent after falling as much as 3.5 per cent.
Many Asian markets were due for a correction after their recent spectacular performance, analysts said.
Benchmark indexes in China, Australia and Singapore had all hit records in February. Before this week's plunge, Malaysian stocks had gained 17 per cent this year, while Philippine shares had climbed about 12 per cent.—AP
