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business.iafrica.com MARKETS The global stock market is in crisis
The storm laying waste to global stock markets is already longer and more widespread than any for a generation, analysts said on Tuesday, warning that prices might not turn around for months.
The statistics do not make happy reading for share buyers.
The tech-rich Nasdaq index has lost more than 60 percent of its value in less than a year. The Tokyo market is at 16-year low points. The London market is at a two-year low, Frankfurt at a 15-month nadir. The broader US S and P market has fallen by 20 percent from its peak. Comparisons with previous market meltdowns, such as the 1987 crash, the 1997 Asian crisis or the 1998 emerging markets mayhem, are being made.
But the current rout is more durable, more deep-seated and more destructive than any of its predecessors since the global recession of the early 1980s, economists believe.
"This is about as nasty as we are likely to see in our lifetimes," said Deutsche Bank economist Bob Semple. "Anyone under 40 hasn't seen anything like this.
"The thing about crashes is they imply sudden demise, like in 1987 when the thing went through the floor," Semple told AFP. "But this time it's a long drawn-out affair. It already is longer than those crashes. We haven't seen anything like this since the recession of the early 1980s."
The red tide of falling share values began as a blip on a screen last April, when the US tech-rich Nasdaq index suddenly went into reverse after years of soaring gains.
The malaise spread from burned-out dotcom stocks to a telecom sector weighed down by the cost of technological investment. Companies began issuing profit warnings. Business investment started to slow. More profit warnings followed.
Then the hammer blow: the US economy slowed dramatically in the fourth quarter, the first tangible sign that the decade long bull run that culminated in the technology boom was about to come to a bumpy end.
Analysts said this was a very different scenario from that of 1987, when markets fell by up to 20 percent in a few short sessions only to claw back their value in a matter of weeks.
And it was different from the 1997 and 1998 crashes, which were triggered by chronic fears over Asian and emerging market economies.
"This is a more generalised bear market," said HSBC strategist Peter Oppenheimer.
"Then, a crisis in Asian and emerging markets led to downturn in western markets," he said. "This is more about western economies hitting a recession, particularly the US. We have argued that we have been in a bear market for some time and this is the last stage of it."
The snowball effect has been severe. Confidence has crumbled. One gauge of the haemorrhage of sentiment is the extent to which company directors are selling their own shares, said Dhaval Joshi, an economist with SG Securities.
"Corporate order books are weak and getting weaker, and company directors are becomign quite pessimistic about their future order books," he said.
"One way of illustrating this is to see what they are doing in terms of their own share dealings," Joshi told AFP. "Directors are huge sellers of their own shares. Three times as many sellers as buyers."
So how long will it last? Longer than in 1987, 1997 and 1998, analysts predict.
According to Oppenheimer, sentiment will not improve "at least until the middle of the year."
"The economic environment will remain increasingly negative through the course of this year and still pretty weak through next year, but the markets will begin to anticipate it later this year," he predicted.
Others were still more pessimistic.
"In the recession of the early 1980s, peak to trough in the (United) States took two years," noted Semple.
"If you believe this is a recession, we may be only half way through it."
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-- Martin Thompson (email@example.com), March 13, 2001