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6 Oct, 2008 19:12

Panic engulfs global markets

Investors have seen billions of dollars wiped from the value of holdings around the world on Monday. Russian stock markets took their most brutal one-day beating in a decade. Indices plunged by 19 per cent, forcing trading to be suspended throughout the d

Global stockmarkets have crashed on fears of renewed threats to major global financial players, setting aside the passing of a $700 Billion bail out approved by the U.S. Congress on Friday, and Monday's news that the U.S. Federal reserve will double its cash auctions to as much as $900 Billion in an attempt to restart short term lending on interbank markets.

Amongst the biggest hits were those taken by the RTS and Micex in Moscow. They closed Monday trade 19% and 18% down respectively, with the trading day punctuated by three halts.  Major Banks VTB and Sberbank, saw their share price hammered 24% and 15% respectively, as global concerns about the banking and financial industry battered sentiment yet again.  Adding to the gloom on VTB was its Friday revelation that it lost about $360 million in trades during September.

Norilsk Nickel shares fell 30% on the Micex as commodity prices slumped globally, but with further negative sentiment surrounding the holdings of Oleg Deripaska. On Friday it was disclosed that the financial backers of his acquisition of a 20% stake in Canadian car parts manufacturer Magna, had realized the assets.  He owns a major stake in Norilsk, and has been at loggerheads with rival shareholder Vladimir Potanin over Norilsk’s share buy back and management strategy.

Energy major also suffered heavy hits as oil slid below $90 BBL. That saw Gazprom and Lukoil down 20% apiece, with Rosneft down 24% on the Micex.

Russia wasn’t alone in seeing billions wiped from stock values however.  The selloffs began in Asia where Tokyo and Hong Kong were both down more than 4% with Sydney down 3%.  Emerging markets were hit savagely with Shanghai and Mumbai down more than 5%, and Brazil’s Bovsepa opening more than 10% down.

In Europe Monday marked the worst ever fall of the FTSE 100 in London.  It finished Monday 7.9% lower in its worst days trade ever.  Its counterparts in Frankfurt and Paris were similarly engulfed in frenzied selling to finish the day 7% and 9% down respectively.  In New York afternoon trade sees the Dow down more than 5%.

U.S. financial markets have followed the global trend with all indices in the red at the closing bell.

Banking stocks hits

Mondays falls saw banking stocks bear the brunt of the tsunami of selling pressure, despite the U.S. Congress on Friday approving a $700 Billion bail out Act.  Fears that it may not be enough were heightened on the weekend when the German Government stepped into bail out Hypo Real Estate, the country’s largest home lender, on Sunday.  In an even bigger development the German Government agreed to guarantee bank deposits. Christian Democrat parliamentary leader Volker Kauder made it clear, that public confidence in the finance system was at stake.

“It was a guarantee that was given, and if it was not given, many more institutions would have got into difficulties. That is why this guarantee is not for the bank managers, but for the stability of the system, and also for us to be able to tell people in this country: your savings are safe.”

Germany is the third country in the Eurozone to offer some form of guarantee within the last week, following on from Eire and Greece.  Any hope that the financial chaos which has engulfed the United States could be contained there has now evaporated, despite the Congress approving a $700 Billion bail out of the U.S. Financial system on Friday.  While the world was waiting for Congress to come up with a deal, banks in Belgium, Iceland and the UK went to the wall in one way or another, with the mounting sense of crisis starting to smell more like panic.

In the U.S. Monday has seen the Federal Reserve announce yet further steps to inject liquidity into money markets.  It will double cash auctions to banks to more than $900 Billion, in its latest attempt to restart short term lending between banks.