Tokyo: Asian and European stock markets plunged on Monday following declines on Wall Street last week amid investor pessimism over the US government’s stimulus plan to prevent a recession.
India’s benchmark stock index tumbled 7.4%, while Hong Kong’s blue-chip Hang Seng index plummeted 5.5% to 23,818.86—its biggest percentage drop since the 11 September 2001 terror attacks.
Investors dumped shares because they were sceptical that an economic stimulus plan US President George W. Bush announced on Friday would shore up the economy that has been battered by problems in its housing and credit markets. The plan, which requires approval by Congress, calls for about $145 billion (Rs5.71 trillion) worth of tax relief to encourage consumer spending.
Concerns about the outlook for the US economy, a major export market for Asian companies, has sent the region’s markets sliding in 2008. Just last Wednesday, the Hang Seng index sank 5.4%.
“It’s another horrible day,” said Francis Lun, a general manager at Fulbright Securities Ltd in Hong Kong. “Today it’s because of disappointment that the US stimulus (package) is too little, too late and investors feel it won’t help the economy recover.”
Japan’s benchmark Nikkei 225 index slid 3.9% to close at 13,325.94 points—its lowest close in more than two years. China’s Shanghai Composite Index plunged 5.1%.
The sell-off continued in Europe. Germany’s DAX was down 6% in morning trading, France’s CAC 40 slid 6.1%, while Britain’s FTSE 100 dropped 5.1%.
“People are certainly nervous about a potential recession in the US spilling over to the rest of the world,” said David Cohen, director, Asian Economic Forecasting at Action Economics in Singapore. “Maybe there’s still some wariness about politicians are able to come up with a compromise and act sufficiently quickly” on a stimulus package. “I think the impact would be marginal anyway,” he added.
Investors took cues from the negative reaction to the president’s plan on Wall Street on Friday, when the Dow Jones Industrial Average slid 0.5% to 12,099.30, bringing its loss for the year so far to nearly 9%.
Traders have also shrugged assurances from the Federal Reserve chairperson Ben Bernanke that the US central bank is ready to act aggressively, which means a likely big interest rate cut later this month to help the sagging economy.
Some analysts predict that Asia won’t suffer dramatically from a US recession because increased trade and investment within Asia has made the region less reliant on America than in the past. Excluding Japan, 43% of Asia’s exports go to other nations in the region, Lehman Brothers Inc. calculates—up from 37% in 1995. But on Monday, uncertainty and pessimism reigned.
Cassie Biggs in Hong Kong, Ramola Talwar Badam in Mumbai and Elaine Kurtenbach in Shanghai contributed to this story.