Free-fall in Asia

Press, 20 October 1987, Page 25

Free-fall in Asia

NZPA-Reuter Tokyo Asia’s three biggest stock markets — Tokyo, Sydney and Hong Kong — went into free-fall yesterday, investors scrambling to sell their shares in the wake of last week’s record sell-off on Wall Street. The sharemarkets in Sydney and Hong Kong registered their biggest one-day drop ' and Tokyo its slxthbiggest decline. “I’m cleaning the blood off my hands,” said one broker in Hong Kong, where the Hang Seng index had dropped more than 420 points shortly before the close. “There was just one factor —. New York,” said a senior broker at Nomura Securities, Japan’s biggest brokerage firm. The Nomura Index dived more than 700 points in the first hour of trading and then edged back up slightly to close 620.18 points down at 25,746.56. Sydney’s all-ordinaries index fell a record 80.4 points to 2064.2 in spite of a surge in gold related shares helped by stronger gold prices. In Hong Kong, the market lost about 10 per cent of its total value.

Brokers were reluctant to proclaim the sell-off as the beginning of the end for the bull run which has sent stock markets around the world soaring over the past few years. “It is far too early to say if a bear market has started,” said a broker in Tokyo, which now has the biggest capitalised share market in the world.

The key to stock movements on Wall Street and elsewhere over the next few days may be the U.S. dollar’s behaviour, dealers said.

After a sharp fall early on, the dollar stabilised and moved back up to end In Tokyo at 141.35 yen and 1.7730/35 West German marks.

New York Stock Exchange prices fell about 10 per cent last week, 235.48 points on the Dow Jones index of 30 leading industrial stocks. The market fell 108.36 points on Friday, a record for one day. Trading in London on Friday was disrupted by storms. The FTSE 100 index, quoted only indicatlvely, fell 64.6 points. Wall Street analysts generally agree that while the market took a severe blow in last week’s record decline, it can still recover and continue its five-year rise. The severe drop last week affected stock markets round the world. But professionals in those markets were generally positive. Brokerage analysts polled by Reuters in New York, Tokyo, and Europe mostly said they believe the markets are in a downward “correction” but not heading for a collapse. “The bull market has been badly bent but not broken,” said Mr Monte Gordon, research director at Dreyfus Corporation, in New York. ”1 suspect there will be some kind of rebound pressure.” But a new feeling of caution has gripped United States brokers and investors and that may make it more difficult for the market to rebound this time. "One of the elements missing for the last couple of quarters was fear,” said Mr Jack Sullivan, of Van Kasper and Company, in San Francisco, talking about growing investor confidence, which has encouraged the buying of

shares. "It’s no longer missing.” One New York broker said any investors who began buying shares just before the August peak had their fingers burned and might be frightened off for a long time. A new element was injected during the week-end when the New York Times quoted a senior Reagan Administration official as saying the United States might allow the dollar to decline against the West German mai-k. But in a television interview on Sunday, the Treasury Secretary, Mr James Baker, said only that the United States was examining the 1987 agreement with its allies on economic issues. Wall Street has been extremely nervous about the course of the U.S. currency. A lower dollar, which has the potential to narrow the American trade deficit, also adds to inflation and discourages foreign investors, a prime force on Wall Street. Wall Street prices flrpt nose-dived on Wednesday on Government figures showing a larger than expected U.S. trade gap in August. Stocks fell in heavy trading, breaking a record for a ohe-day drop set in the previous week. Prices declined further on Thursday, and on Friday it turned into an avalanche as the Dow Jones industrial average fell a record 108.36 points to 2246.73. Volume set a record, 338.5 M shares trading on the New York Stock Exchange. The heavy volume encouraged some to believe a “selling climax” was at hand, a situation where sellers of stocks exhaust themselves and set the stage for a turnround.