September 24, 2011 12:00 AM
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
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
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
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
http://www.philstar.com/Article.aspx?articleId=730344&publicationSubCategoryId=63
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