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Sunday 12th of October 2008
February 27, 2007

World equities markets decline

by Elaine Frei

World equities markets decline

World equities markets declined on Tuesday after Chinese markets dropped almost 9 percent on the session. The Shanghai Composite Index fell 8.8 percent to 2,771.79, its biggest one-day decline since the death of Deng Xiaoping on 18 February 1997. The declines there came on rumors that China is getting ready to impose a capital gains tax and worries that interest rates are about to be raised there after the central bank raised the requirements for bank reserves on Sunday. Another factor in the declines in China and elsewhere were comments from former US Federal Reserve chairman Alan Greenspan that the US economy could “possibly” enter a recession later in the year.

In other Asian markets, the Hang Seng Index in Hong Kong dropped 1.8 percent and the Strait Times Index in Singapore was 2.3 percent lower. Declines in Japan and Taiwan were not as steep. In Japan, the Nikkei 225 fell 0.5 percent to 18,119.92, while the Topix Index fell 0.3 percent to 1,811.33. In Shanghai, however, 835 stocks saw declines, while only 33 advanced. More than half the shares that were lower lost more than 10 percent of their value.

Declines in Europe were widespread. The FTSE Eurofirst 300 was 2.86 percent lower to 1,506.05. Warsaw saw a 4.4 percent decline, while Prague’s PX Index dropped 4.1 percent. In Moscow, meanwhile, the RTS Index was down 3.3 percent. In Western Europe, the CAC 40 in Paris dropped 3.02 percent to 5,588.39, while the Xetra Dax in Frankfurt was 2.96 percent lower, to 6,819.65. Banks were lower, as were car and truck manufacturers.

In London, the FTSE 100 dropped 2.31 percent to 6,286.10, while the FTSE 250 was 3.72 percent lower 11,180.90. Among the biggest declines there were among miners. Antofagasta (LSE: ANTO) dropped 5.6 percent, while Lonmin (LSE: LMI) and BHP Billiton (LSE: BLT; NYSE: BHP; ASX: BHP) each fell 6.2 percent and Xtrata (LSE: XTA) was 6.7 percent lower.

In early afternoon trade in New York, the Dow Jones Industrial Average had dropped 194 points to 12,436, while the Nasdaq Composite fell 58 points to 2,446 and the S&P 500 was 24 points lower to 1,424. The declines in other markets were only one component of the losses on Wall Street. Other factors included continuing concerns about the Iran situation after that nation’s foreign minister said that his country would “never” suspend its uranium enrichment program, and a possible assassination attempt against US Vice President Dick Cheney as he visited a US military base in Afghanistan. While the Taliban claimed responsibility for the attack, which killed 23 but left Mr. Cheney uninjured, a US official publicly doubted that claim.

The concerns over Iran’s stance on its nuclear program sent crude oil prices a bit higher, with West Texas Intermediate crude up 63 cents by early afternoon in New York and Brent crude 67 cents higher in late afternoon trade in London. Metals prices were mixed, with gold and most base metals lower but nickel hitting a new record high for the third day in a row.

The decline in equities markets turned out to be of benefit to the yen and the Swiss franc, as both strengthened as investors tried to avoid risk in the placement of their money. By mid-afternoon in New York, the yen was up 1 percent versus the euro, 1.4 percent higher against sterling, and had gained 0.6 percent versus the US dollar. The Swiss franc’s gains were smaller as it added 0.2 percent in relation to the euro and was up 0.7 percent on the greenback. The dollar was lower after US durable goods orders were down more than had been anticipated, giving Mr. Greenspan’s comments about a possible recession in the works some credibility. Even though data showed home sales and consumer confidence up in the US, the dollar dropped 0.4 percent versus the euro.

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