Market Meltdown? U.S. Worries Ricochet Around World

Financial analyst: "I think the word you use to describe this is a crash."

February 9, 2009, 3:43 PM

BEIJING, Jan. 22, 2008 — -- The worldwide stock sell-off accelerated for a second day, sending Asian markets into fast decline and forcing investors to seek sanctuary.

"I think the word you use to describe this is a crash," said Adrian Mowat, chief Asia strategist for JP Morgan. "The market has fallen very sharply. One market fall triggers another fall."

There were record-point trips in some Asian markets.

Japan's Nikkei average closed down at 5.7 percent, its largest percentage drop in nearly a decade.

Hong Kong's Hang Seng plunged to 8.65 percent. Even insulated markets that normally buck the trend, such as in China and India, did not come out unscathed.

In Mumbai, trading was temporarily halted when the stock markets plunged more than 10 percent in the first few minutes after the opening bell.

In mainland China, private investors crowded around computers at local brokerage firms, praying for good news. The Chinese stock markets are relatively immature and there are many retirees who have invested part of their savings in volatile stocks. The Shanghai Composite index closed down at 7.2 percent in today's trading.

"I lost 40 [percent] to 50 percent of my investment in the past few days," said Zhang, who declined to give his first name. "What can I do now? I am doing nothing. … It's safer to stay rather than take any action at this moment."

European markets, which fell sharply Monday, were volatile today. By midmorning, the U.K. FTSE 100 had slipped 1 percent and Germany's DAX had dropped 2.9 percent while France's CAC 40 declined 1.1 percent.

The market meltdown has several triggers, all set to the backdrop of the U.S. subprime mortgage crisis and President's Bush's economic stimulus package. Bush's plan has not reassured investors who are worried that if the U.S. economy slides into recession, the rest of the world — particularly export-driven Asian companies — will be pulled down with it. In other words, if the U.S. consumer stops buying goods made in Asia, Asian economies will suffer.

Asian markets have been in a recessionary mode since the beginning of the new year and Japan has already faced a cloudy outlook due to weak private spending.

JP Morgan's Mowat says hope is not lost.

"Let's not forget that growth remains very strong in these emerging economies," Mowat said. "I think the fundamental story remains very good."

Investors are also worried there will be another round of worldwide bank write-downs on securities related to the U.S. subprime mortgage crisis. The Bank of China suspended trading of its shares today, after its stock price plummeted Monday.

There are reports that China's largest lender is preparing to announce a significant write-down on its $7.95 billion in U.S. subprime mortgage holdings.

There are also jitters about other aspects of China's economy, including rising inflation and its private property market.

All eyes are on what happens next on Wall Street. If the Federal Reserve cuts base interest rates further, analysts say there may be an immediate rebound.

"Investors are scared to move into these markets until they see a signal from the U.S. stock market," said Mowat.

The Associated Press contributed to this report