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Manic Monday on Asia stock
markets
By Gary LaMoshi
HONG
KONG - When I first began reporting on stock markets,
back before anyone knew "Asian" rhymed with "contagion",
the editor gave us a cheat sheet listing acceptable
descriptions for different market situations. I don't
recall all the details, but I remember that the last
entry was for a fall of 1 percent in a single session,
and that unlikely scenario alone qualified for the term
"crash".
The note continued, cheekily, that if
markets ever fell more than 1 percent, "Call me, and
I'll give you the right word." That editor's phone must
have been ringing off the hook on Monday. Singapore's
Straits Times index crashed 2.82 percent - and thus, was
the top performer among major East Asian markets. South
Korea's benchmark, the Kospi index, collapsed more than
twice as much, 5.73 percent, and other markets finished
somewhere in between.
The combination of the
raging US bull market of the late 1990s and the Asian
market crash of 1997-98 turned my old editor's 1 percent
rule into a quaint anachronism. Markets volatility has
mushroomed over the past decade, but Monday's panic
losses stand out. One broker in Seoul told reporters it
was "worse than the Asian crisis".
Nikkei
nosedive
Perhaps most surprising was the
554-point, 4.84 percent fall in Japan's Nikkei 225
index. It's one thing for a minor league market such as
Manila (a big winner on Monday - closed for national
elections) or Jakarta to take a
multiple-percentage-point plunge. Those striking changes
represent the same amount of actual money as a
fractional move in Tokyo.
In terms of market
capitalization - the value of all stocks listed - the
Tokyo Stock Exchange ranks among the top three in the
world, after London and New York. Tokyo's US$2 trillion
market capitalization is then four times as great as
that of its closest regional rival here in Hong Kong and
as large as the next five biggest markets - Hong Kong,
Sydney, Seoul, Taipei and Singapore - combined. A drop
of 4.84 percent in the Nikkei index translates to
investor losses of about $100 billion.
The
index's biggest loss since the aftermath of September
11, 2001, wasn't the result of bolts from the sky. The
developments that led to Asian markets' manic Monday
have been well known and long expected, which makes the
panic selling seem particularly senseless. By Tuesday
morning, order had been restored to Asian markets, with
some analysts all but admitting that Monday's reactions
were overdone, and European markets opened quietly.
Monday was Asia's first opportunity to react to
strong US job-growth figures released on Friday,
indicating that the US economic recovery is real. Since
the United States is the world's biggest export market
and Asian nations look to exports for growth, that would
seem to be good news. But growth comes with a bitter
pill that apparently looms larger when you have a full
weekend to think about it.
Buy your own punch
bowl
The US recovery makes it likely that the US
Federal Reserve will begin raising interest rates from
current 40-year lows, perhaps as soon as next month.
Stock markets hate higher interests, which both depress
growth and make competing financial projects, such as
bonds and bank accounts, more attractive. Interest-rate
hikes are popularly portrayed as the central bank taking
away the punch bowl at the party. But when the economy
is growing reliably, people can afford to buy their own
drinks; although from a narrow financial viewpoint, real
growth temporarily slows down stocks.
It's a
central bank's job to adjust monetary policy to keep
growth and employment moving forward without letting
inflation return to the economy. It's a tricky game, but
US Fed chairman Alan Greenspan is widely saluted as a
grand master, one of the all-time greats of the game.
The other factor depressing Asian markets in
particular is that China's central bank is trying to
succeed at the same game. Premier Wen Jiabao wants to
cool China's growth from more than 9 percent last year
to 7 percent this year. Asia in general, Japan and South
Korea in particular, depend on China's boom to fuel
their sputtering economies. In the long run, slower
growth in China will keep the machine humming and ease
the inflation pressure from China's appetite in oil and
metal markets. But Asians worry, because China doesn't
have an Alan Greenspan in its lineup.
When Hall
of Fame reformer Zhu Rongji tried to rein in the
explosive growth after Deng Xiaoping's 1992 southern
excursion, he wound up with a severe recession. Some
observers feel that only the 1997-98 Asian economic
crisis - which left insulated China as the only domino
standing in the region and spurred foreign investment -
ended that recession. Neither China nor its neighbors
want to go that route again, but the track record
doesn't inspire confidence.
Double
dips
Prospects of a slowdown in China depressed
Tokyo and other markets late last week. While
suggestions of the Fed applying the brakes in the United
States, and a weekend to consider all that that implies,
apparently combined to create a surprisingly strong
overreaction in Asia.
It's not just Asians to
blame. Investors want to believe there's adult
supervision in a market as large and important as Tokyo,
but it's not grown-ups, or even humans, in charge.
Recovery in regional stock markets includes massive
foreign investment, and that so-called hot money ebbs
and flows to the tune of black-box investing programs
that summon it home at the first sign of better
opportunities or of rivals retreating. The prospect of
higher US interest rates produces new options that suck
funds out of Asia.
It used to be important to
invest in overseas markets to diversify, but
globalization means that virtually all markets now react
to the same sets of factors. Outside Asia on Monday,
Europe's main indexes fell more than 2 percent, and the
New York markets merely "crashed" 1 percent to their
lows for the year.
Asia's manic Monday in
response to US interest-rate prospects brings to mind
words from another editor, Mark Twain, who once said,
"Jews are just like the rest of us - only more so." Let
the record show that Twain was a remarkably poor
investor. But in a climate where panic comes so easily
and spreads so far, it's increasingly difficult to be a
good one.
(Copyright 2004 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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