Shares Plummet on fears of Global Slowdown

'Everything is made in China nowdays' seems to sum it up.B

FT.COMShares plummet on fears of global slowdown

By Christopher Brown-Humes in London, Geoff Dyer in Shanghai and  Michael Mackenzie in New YorkPublished: February 27 2007 09:24 | Last updated: February 27 2007 21:10

US stocks suffered their steepest drop since markets reopened  following the September 11 attacks in 2001, after the biggest fall in  Chinese shares for a decade and slides in other global stock markets  triggered a sharp rise in risk aversion.

The Dow Jones Industrial Average was down more than 500 points at one  stage on Tuesday afternoon as concerns over Iran, worries about the  US subprime mortgage market and a warning from Alan Greenspan, former  chairman of the Federal Reserve, about a possible US recession  punctured recent market optimism. There was a sell-off in higher risk  credit markets and a rising yen signalled the beginnings of an  unwinding of the global carry trade, where investors borrow in  currencies with low interest rates to buy higher-yielding assets  elsewhere.

Mainland Chinese shares fell nearly 9 per cent amid fears that the  authorities were planning a crackdown to cool the market’s  exuberance. Traders said it was highly unusual for events in Chinese  markets to have a global impact, but saw it as a sign of China’s  increasing influence on the global economy.

“This goes to show that everything is made in China these days,” said  Tim Bond at Barclays Capital, the investment bank.

The FTSE Eurofirst 300 index dropped 2.86 per cent – its biggest  daily fall for four years – while the FTSE 100 index fell 2.31 per  cent, its largest fall since June.

On Wall Street, the Dow Jones Industrial Average was 3.2 per cent, or  400 points, lower in late afternoon trade, after the New York Stock  Exchange had introduced trading curbs – the first time computer  trading had been limited since July. The S&P 500 index was also down  3.2 per cent.

Leading emerging markets were among the hardest hit, with Turkish  shares falling 4.5 per cent, Russia’s RTS index down 3.3 per cent and  Brazil’s Bovespa index off 6.6 per cent.

“Markets that have risen faster than others will face a sharper  decline as hedge funds reduce their exposure,” said Mary Ann Bartels,  chief US market analyst at Merrill Lynch.

The global sell-off was aggravated by a weaker-than-expected 7.8 per  cent fall in US durable goods orders in January, although that was  partly offset by more positive news on consumer confidence and  housing. There was a flight to safety in bond markets, with yields on  10-year US Treasuries falling 13 basis points to 4.499 per cent.  European junk-rated credit saw one of the biggest one-day rises in  the cost of protection for such debt that the derivatives markets  have seen.

The Japanese yen and the Swiss franc – the main funding currencies  for the global carry trade – made strong gains.

Bob Parker, deputy chairman of Credit Suisse Asset Management, said:  “This is going to be more than just a one-day event and could go on  for a few weeks. But it’s not the start of a one-year bear market  trend.”

Simon Hayley, senior international economist at Capital Economics,  said: “If today’s global sell-off tells us anything, it is that  sentiment in developed markets is fragile.”