The Market Turned Chinese
Falling stock prices began Tuesday in China and spread throughout the world. The Russian RTS was practically the hardest hit of all markets, falling 6 percent in two days to 1860 points. Now the world is dealing with the causes of the Chinese “correction.” Former chairman of the U.S. Federal Reserve Board Alan Greenspan has been asked to speak more cautiously. On the NYSE, they are looking into software errors. In Russia, they are waiting to find out how much foreign capital left the country and what new investors will replace it.
Tuesday's plummeting stock market in China continued yesterday to make itself felt worldwide. Chinese indexes, where the whole thing began, fell yesterday morning within the limits of another 1 percent, but picked up by 3-4 percent against the previous day's 9-percent loss by the evening. But the wave spread across Southeast Asia (where markets lost 2-3 percent) and Europe (with losses of 1-1.5 percent).
The RTS index was practically the biggest victim of the Chinese “correction” (analysts are refraining from using stronger expressions to describe it). Yesterday, the Russian stock market experienced one of the sharpest losses of all world markets. By the middle of the day, it had fallen to 1836 points, 7 percent lower than at closing on Monday. At the end of the second day, the loss was 5.7 percent, and the index stood at 1858.14 points. Only the unexpectedly positive opening of trading on American exchanges saved the day (the Dow Jones index rose by 0.7 percent).
We will note that the United States dealt most actively with events. There they see two other causes of the slide beside the actions of the Chinese government: Greenspan's unfortunate statements in Hong Kong and the technical problems on the NYSE.
On Monday, Greenspan unexpectedly stated that “it is possible we can get a recession in the latter months of 2007.” Many in the U.S. think that those words could have provoked problems on world markets. They contradict the latest statement by current Federal Reserve Board chairman Ben Bernanke. Kommersant has information that Bernanke was highly displeased with Greenspan's statement and, according to one well-informed source, thinks he “should be more careful and responsible.”
Another account attributes a share of blame to the problems with secondary trading in the NYSE. After the bell rang ending trading on the floor of the New York exchange, many specialized traders remained who normally leave promptly. Exchange administrators joined them there and engaged them in animated conversation. Exchange managers suspect that a trader made a computer error that became another cause of the fall. The Dow Jones index lost 3.3 percent on Tuesday, the S&P lost 3.5 percent and Nasdaq lost 3.9 percent. “It is entirely possible that someone on the floor entered extra zeroes into the computer when he concluded a deal,” an exchange source reported to Kommersant about the “enormous” discrepancy. On Wednesday morning, other information surfaced – that there may have been a malfunction of the NYSE computer system, adding to the rush. But they do not believe it was an error in Russia. “Everyone has had the feeling for a long time that the global stock market was overbought. The events in China were the pebble that caused the landslide we are calling a correction,” commented Dmitry Roenko, head of the investment department at Olma. “After the fall in China, everyone immediately recalled the 1997 crisis. That time they underestimated the scale of events and this time they decided to pay it safe.” Traders also note that the vents in the U.S. played a role in the current correction.
The main question that will make it possible to evaluate the scale of losses is how great the outflow of investors will be from the markets of developing countries when it ends. “The clients of global funds began to reevaluate the risks of developing countries after the sharp fall on the Chinese market,” noted Renaissance Capital analyst Ovanes Oganesyan. “Their response was either to pull funds out or reduce limits.” The outflow is already being seen in Russia. The volume of trading in the classical section of the RTS on Wednesday was $180 million, a ten-month high. The day before, it had been $87 million, and a week before daily trading reached $40 million only with difficulty. Traders say that the single cause of the change is foreigner funds pulling their money out. “Foreign funds were the main sellers,” confirmed Michael Boboshko, director of stock market operation for FIM Securities. MDM Bank trader Derek Perlin asked, “Who wants to show a loss in February?”
At present, it is not possible to evaluate the size of the outflow. On Friday, the Emerging Portfolio Research Fund will release its findings, which will show how much funds took out of Russia. Traders say that there is no reason for panic and the fall will not continue. But many are not prepared to wait weeks for the situation to receive final elucidation. “Many clients are already showing interest in the market Their only question is whether to wait a little more or begin buying now,” Boboshko noted.
Vitaly Gaidaev; Dmitry Sidorov, Washington
All the Article in Russian as of Mar. 01, 2007
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