ID :
20260
Sat, 09/20/2008 - 08:46
Auther :
Shortlink :
http://m.oananews.org//node/20260
The shortlink copeid
Fear in markets is here to stay: experts
(AAP) - Fear and panic was upper most in the hearts and minds of investors around the world this week as share markets tanked, and financial experts believe the trauma could continue for some time yet.
The unfolding drama in New York, starting on Monday with the collapse of 158-year-old investment bank Lehman Brothers, caused a violent reaction on Wall Street that rippled through markets in London, Hong Kong, Sydney and all points in between.
Suddenly, almost every financial stock was investment poison, regardless of the
health of their balance sheets, as investors scoured for any signs of potential
weakness.
Throw in a whole lot of speculation - and the malign influence of aggressive hedge
funds - and knee-jerk selling ensued.
"It's definitely a sell-the-rumour market," Societe Generale's chief economist in
Asia, Glenn Maguire, said from Hong Kong.
"Given the events on Wall Street are once-in-a-generation events that most investors
have not seen before, there is a lot of fear driving the market."
But the direction was not all one-way, with markets yo-yoing through the week.
The Australian market finished down 2.4 per cent over the week - after heavily
falling for four sessions in a row, a four per cent rally on Friday helped recoup
some of its losses.
Westpac senior economist James Shugg attributed the erratic behaviour of the
Australian and other markets to investors "jumping at shadows".
"Some of those shadows will actually turn out to have a big monster at the other end
and others will not, but who knows which is the one to jump at and which is the one
not to," Mr Shugg said from London.
"Markets are driven by fear and greed and at the moment we are in the fear mode,
clearly."
Movements in the share price of investment bank Macquarie Group through the week
summed up investor skittishness. The stock was pummelled on fears that it might have
problems refinancing debt, even though the bank said it remained well funded.
Starting the week at $44.01, Macquarie fell to a near five-and-a-half year low of
$26.05 by Thursday, before recovering to close at $35.90 on Friday. Over the week,
investors wiped a net $2.28 billion off its market value.
Mr Shugg said it was impossible to anticipate how the market would behave going
forward, given that prices had been moving so sharply "even with absolutely no news
whatsoever".
Societe Generale's Mr Maguire said it will take some time for conditions in
financial markets to calm down.
"Essentially the markets will remain volatile," Mr Maguire said.
"It's going to take a while for fundamentals to reassert themselves as the principal
driver of markets."
Australia's big commercial banks were also under siege this week, despite
reassurances from Reserve Bank of Australia (RBA) governor Glenn Stevens and the
federal government that the banking system was in good shape.
Mr Stevens told a business lunch in Sydney that Australian banks were reporting good
profits, still had ample capital and access to funding, albeit more expensive.
Prime Minister Kevin Rudd said Australian financial institutions were in a superior
position to their international counterparts.
"There is a world of difference between the circumstances surrounding Australia's
financial institutions and those which face financial institutions abroad," Mr Rudd
said on Thursday.
"We're not immune to those difficulties, but we are in a strong position to see
Australia through."
By Friday, confidence appeared to return to the local bourse, with the key indices
closing about four per cent higher and the big banks - Commonwealth Bank of
Australia, ANZ, National Australia Bank and Westpac - rising by between seven and
17.4 per cent.
But the toll of the week's events was still reflected in the stock market's value,
which fell a net $28.5 billion.
CommSec chief equities economist Craig James said the sell-off this week in banking
stocks had more to do with global fears than domestic realities, given the
relatively low level of bad loans among all the local banks.
Mr James said Australia did not have to deal with the level of sub-prime loans that
exist in the US and Europe.
"Quite simply, comparing Australian financial institutions with those in the US or
UK is like comparing chalk with cheese," Mr James wrote in a research note.
Asian banks were also hit hard on the perception that all banks are alike.
There were big losses on bourses in the region, particularly those in Hong Kong,
Shanghai and Seoul which are heavily weighted with financial stocks.
"I think there is a valid case that financial stocks in Asia have perhaps been
oversold," Mr Maguire said.
"Generally, Asian banks don't have the same degree of leverage as European or US
banks, more funding is raised from the deposit base than is actually borrowed."
While the impact of the global financial turmoil was yet to be felt among consumers,
one group likely to be concerned with the global financial crisis are Australia's
retirees.
The big falls on equity markets have further eroded super funds and comes after many
funds reported lower returns in the last financial year.
Investment and Financial Services Association chief executive Richard Gilbert said
it was a tense time for those about to access their super, but urged people not to
panic.
"They should not jump like lemmings off a cliff," Mr Gilbert said.
"They should seek advice before they do that because there are options.
"It's a long term investment and it is still the best tax game in town by 1,000
metres."
The unfolding drama in New York, starting on Monday with the collapse of 158-year-old investment bank Lehman Brothers, caused a violent reaction on Wall Street that rippled through markets in London, Hong Kong, Sydney and all points in between.
Suddenly, almost every financial stock was investment poison, regardless of the
health of their balance sheets, as investors scoured for any signs of potential
weakness.
Throw in a whole lot of speculation - and the malign influence of aggressive hedge
funds - and knee-jerk selling ensued.
"It's definitely a sell-the-rumour market," Societe Generale's chief economist in
Asia, Glenn Maguire, said from Hong Kong.
"Given the events on Wall Street are once-in-a-generation events that most investors
have not seen before, there is a lot of fear driving the market."
But the direction was not all one-way, with markets yo-yoing through the week.
The Australian market finished down 2.4 per cent over the week - after heavily
falling for four sessions in a row, a four per cent rally on Friday helped recoup
some of its losses.
Westpac senior economist James Shugg attributed the erratic behaviour of the
Australian and other markets to investors "jumping at shadows".
"Some of those shadows will actually turn out to have a big monster at the other end
and others will not, but who knows which is the one to jump at and which is the one
not to," Mr Shugg said from London.
"Markets are driven by fear and greed and at the moment we are in the fear mode,
clearly."
Movements in the share price of investment bank Macquarie Group through the week
summed up investor skittishness. The stock was pummelled on fears that it might have
problems refinancing debt, even though the bank said it remained well funded.
Starting the week at $44.01, Macquarie fell to a near five-and-a-half year low of
$26.05 by Thursday, before recovering to close at $35.90 on Friday. Over the week,
investors wiped a net $2.28 billion off its market value.
Mr Shugg said it was impossible to anticipate how the market would behave going
forward, given that prices had been moving so sharply "even with absolutely no news
whatsoever".
Societe Generale's Mr Maguire said it will take some time for conditions in
financial markets to calm down.
"Essentially the markets will remain volatile," Mr Maguire said.
"It's going to take a while for fundamentals to reassert themselves as the principal
driver of markets."
Australia's big commercial banks were also under siege this week, despite
reassurances from Reserve Bank of Australia (RBA) governor Glenn Stevens and the
federal government that the banking system was in good shape.
Mr Stevens told a business lunch in Sydney that Australian banks were reporting good
profits, still had ample capital and access to funding, albeit more expensive.
Prime Minister Kevin Rudd said Australian financial institutions were in a superior
position to their international counterparts.
"There is a world of difference between the circumstances surrounding Australia's
financial institutions and those which face financial institutions abroad," Mr Rudd
said on Thursday.
"We're not immune to those difficulties, but we are in a strong position to see
Australia through."
By Friday, confidence appeared to return to the local bourse, with the key indices
closing about four per cent higher and the big banks - Commonwealth Bank of
Australia, ANZ, National Australia Bank and Westpac - rising by between seven and
17.4 per cent.
But the toll of the week's events was still reflected in the stock market's value,
which fell a net $28.5 billion.
CommSec chief equities economist Craig James said the sell-off this week in banking
stocks had more to do with global fears than domestic realities, given the
relatively low level of bad loans among all the local banks.
Mr James said Australia did not have to deal with the level of sub-prime loans that
exist in the US and Europe.
"Quite simply, comparing Australian financial institutions with those in the US or
UK is like comparing chalk with cheese," Mr James wrote in a research note.
Asian banks were also hit hard on the perception that all banks are alike.
There were big losses on bourses in the region, particularly those in Hong Kong,
Shanghai and Seoul which are heavily weighted with financial stocks.
"I think there is a valid case that financial stocks in Asia have perhaps been
oversold," Mr Maguire said.
"Generally, Asian banks don't have the same degree of leverage as European or US
banks, more funding is raised from the deposit base than is actually borrowed."
While the impact of the global financial turmoil was yet to be felt among consumers,
one group likely to be concerned with the global financial crisis are Australia's
retirees.
The big falls on equity markets have further eroded super funds and comes after many
funds reported lower returns in the last financial year.
Investment and Financial Services Association chief executive Richard Gilbert said
it was a tense time for those about to access their super, but urged people not to
panic.
"They should not jump like lemmings off a cliff," Mr Gilbert said.
"They should seek advice before they do that because there are options.
"It's a long term investment and it is still the best tax game in town by 1,000
metres."
