Economy worries hit global shares

Pedestrians reflected on a market board in Tokyo (file photo)
Global markets have been gripped by fears for the financial sector

Global stocks have fallen sharply on fears the global financial sector could take a further turn for the worse.

In Europe, the UK’s FTSE 100 fell by 4.2%, while Germany’s Dax was down 2.8% and France’s Cac 40 lost 3.6%.

Earlier in Asia, Japan’s Nikkei index closed down 3.8% at 7,280.15, and Hong Kong’s Hang Seng index fell 3.9%.

Confidence was hit by a fresh $30bn bail-out of US insurance giant AIG, and news that UK bank HSBC aimed to raise £12.5bn from its shareholders.

HSBC, Europe’s biggest bank, said it would use the money raised from the rights issue to help the bank cope with the effects of the global economic downturn.

The bank also said pre-tax profits for 2008 were $9.3bn (£6.5bn), down 62% on the previous year after it wrote down the value of US assets by more than $10bn.

“The big issue [for markets] is the fact that HSBC – one of the biggest and strongest banks around – is having such problems,” said Jonathan Jackson and Killik & Co.

“It’s difficult to see any trigger for an upturn in the short term,” he added.

Meanwhile, US insurance giant AIG announced a record corporate loss of $62bn in the fourth quarter.

Gloomy news

Weak manufacturing figures in both the UK and eurozone also placed downward pressure on European markets.

You’re seeing the US is sinking lower and lower, and we’re still desperately searching for a bottom

John Mar, Daiwa Securities SMBC Co

The Purchasing Managers’ Index (PMI), compiled by research group Markit, showed that manufacturing activity fell in February compared with the previous month.

“Once again, the extreme weakness in manufacturing activity in February was widespread across the eurozone, with all countries seeing a very sharp contraction in activity,” said Howard Archer at IHS Global Insight.

The figures were particularly badly received because manufacturing activity in both the UK and the eurozone rose slightly in January.

Weak growth

In Asia, weak economic data from China and South Korea underscored fears about the region’s export-dependent economies.

China’s manufacturing sector declined further last month, while South Korean imports and exports also slumped. Japan reported a steep drop in car sales.

Monday’s shares slide followed a poor performance on Wall Street on Friday after data showed that US economic growth was even weaker than thought.

“The Tokyo market is being hit directly by the lower share prices overseas,” said Toshihiko Matsuno, research head at SMBC Friend Securities.

John Mar, co-head of sales trading at Daiwa Securities SMBC Co. said: “You’re seeing the US is sinking lower and lower, and we’re still desperately searching for a bottom.”

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