Sunday, May 23, 2004
Buttonwood investigates the stock-market crash
In an earlier post, I had blogged about how the Indian stock markets reacted to reckless comments by the comrades. Besides, I had speculated on the possibility of a bear cartel at work. Buttonwood suggests the reasons may be more complex and points to the general meltdown in the Asian financial markets, triggered perhaps by the expected rise in U.S. interest rates.
But disenchantment with Indian shares also reflects wariness of risky assets in general and Asian shares in particular. An index of Asian shares produced by Morgan Stanley Capital International fell by 3% on Monday, to its lowest point since November. According to data from Nomura International, more than $5 billion has flowed out of Asian stockmarkets in the past three weeks [Ed:not sure if this includes the FII money thats flowed out of India].
Four fears weigh heaviest: the tense situation in the Middle East and more general concerns about terrorism; a surging oil price (Asian economies are especially intensive users of energy); the threat of higher interest rates in America, which would lessen the need for investors to seek higher returns elsewhere; and, last but by no means least, a fear that the Chinese authorities will pour cold water on the country’s overheating economy. As the region’s economies benefited from China’s rude health, so they will catch a chill when China does.
These worries are unlikely to go away any time soon. The war in Iraq shows no sign of ending; the oil price remains stubbornly above $40 per barrel; the Federal Reserve has yet to put investors out of their misery by raising rates; and it is anyone’s guess what will unfold in China. Still, for Asian equities at least, the fears seem overdone. Granted, economic statistics generally reflect what has been, and markets are supposed to predict what will be, but the numbers coming out of Asia show scant sign of a region in economic distress.
But disenchantment with Indian shares also reflects wariness of risky assets in general and Asian shares in particular. An index of Asian shares produced by Morgan Stanley Capital International fell by 3% on Monday, to its lowest point since November. According to data from Nomura International, more than $5 billion has flowed out of Asian stockmarkets in the past three weeks [Ed:not sure if this includes the FII money thats flowed out of India].
Four fears weigh heaviest: the tense situation in the Middle East and more general concerns about terrorism; a surging oil price (Asian economies are especially intensive users of energy); the threat of higher interest rates in America, which would lessen the need for investors to seek higher returns elsewhere; and, last but by no means least, a fear that the Chinese authorities will pour cold water on the country’s overheating economy. As the region’s economies benefited from China’s rude health, so they will catch a chill when China does.
These worries are unlikely to go away any time soon. The war in Iraq shows no sign of ending; the oil price remains stubbornly above $40 per barrel; the Federal Reserve has yet to put investors out of their misery by raising rates; and it is anyone’s guess what will unfold in China. Still, for Asian equities at least, the fears seem overdone. Granted, economic statistics generally reflect what has been, and markets are supposed to predict what will be, but the numbers coming out of Asia show scant sign of a region in economic distress.
