All the talk in the recent past about the "decoupling" of Asian markets looks
all too distant now - to the point of seeming delusional. Up until six trading
days ago, the main Wall Street indices were down only a bit over 20%, barely a
bear market in definitional terms (wherever the definition came from), while
Asian equity indices had been taking hits as chronicled in this weekly
commentary.
Then the New York stock markets had seven consecutive down sessions, losing 21%
in the last six, cumulating losses of 39% to the Dow Jones Industrial Average
and 42% to the Standard & Poor's 500. A cynic would remark that the US
markets this week recoupled with Asia.
Before discussing the Asian markets for this week, some scene-setting is
required. Oil is set for its largest weekly decline since
December 2004 as the NYMEX Crude spot fell below US$83 in advance of the stock
market open in New York. In response, the Organization of Petroleum Exporting
Countries announced it would probably decide to observe its quotas more
assiduously, implying production cuts while on knife's edge because of the
obvious danger these may pose.
COMEX Copper, a bellwether of the industrial or base metals, crumbled to $2.25,
a two-and-a-half year low, as credit problems and fear of global recession
weighed on demand and with repercussions for the manufacturing sector only
beginning to be imagined. Gold rose to $930 per ounce, and silver bounced above
$12 with strong upwards momentum. In this context, the historic movements on
the Asian equity exchanges appear less abnormal, even if, to take one statistic
almost at random, all but three exchanges were down over 7.5% on Friday.
Against this background, the Nikkei 225 takes the headline, beginning the week
just above 11,000 and closing it only slightly below 8,300 for a loss of 24.3%,
about half of which came on Wednesday. That puts the index in a "loss leader"
class by itself. Three exchanges - Australia, Singapore, and India - lost
between 15.8% and 16.3%; Shanghai and Seoul lost between 12.6% and 12.8%; and
Hong Kong, New Zealand, and Taiwan lost between 9.8% and 11.0%. Taiwan was
closed on Friday, and Mumbai on Thursday.
It rarely happens that such strong definition of groups occurs on a weekly
basis, and it would be inappropriate to attach too much significance to the
fact, yet the statistics are suggestive and not out of line with the various
national equity markets' "personalities". Hong Kong and Taiwan have had some of
the largest declines in recent weeks, so had "less" to fall insofar as the
others had "more" to do to catch up with them, while New Zealand has always
been relatively one of the least volatile in the region.
Singapore is a special case worth noting. It closed out the week near 1,930, a
level not seen since mid-2004, when it confirmed a substantial support formed
in 2003: but again, nothing to count on in present circumstances. Singapore's
economy has fallen officially into its first recession since 2002.
The country's monetary authority, which relies on currency appreciation as an
official policy tool rather than interest rates, had six months ago adopted a
policy of seeking to increase currency appreciation in order to cut the
domestic inflation rate, which reached a 26-year high several months ago, in
the wake of decreased factory production, a fall-off in tourism, and the end of
a real-estate boom. It has now abandoned this policy, and the Singapore dollar
immediately weakened of its own accord against the US currency.
Shanghai was closed all of last week and opened the current week with a bounce
that it quickly lost. The significance here is that it has slipped back to the
2,000 level, at the bottom of the 2,000-2,100 support range that had provided
it some legs in the last few weeks, and from which it had been finally to
grapple a bit upwards following its vertiginous fall over the last year.
Mumbai has crashed through supports to about 10,500 this afternoon local time.
It has a mild support at 10,000, a weaker support at 9,000, and then nothing at
all until the 6,000-7,000 range. Australia, after long vacillations within a
few hundred points around 5,000, closes the current week under 4,000, where it
has nominal support from April 2005; but in this environment, it is impossible
to count on anything.
The carnage is so spectacular and complete that it seems possible to conclude
only on the note that MSCI World Index has had its worst week since 1970.
European markets have opened generally between 4% and 6% down (although
Germany's DAX is off 9%), and one can only imagine what dawn in New York will
bring.
R M Cutler(http://www.robertcutler.org) is a Canadian
international affairs specialist.
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