Source: - http://www.iht.com/articles/2007/02/27/business/stocks.php


Chinese stock plunge sets off a worldwide sell-off
Investors fear economies are cooling

By Julia Werdigier and David Barboza
Published: February 27, 2007

LONDON: U.S. stocks plummeted Tuesday as concerns that the Chinese and American economies were cooling and fears that shares were overvalued sparked a global market decline.

At one point the Dow industrial average was down more than 546 points, or 4.3 percent, at 12,086, but it recovered some ground in the last 90 minutes of trading to close at 12,216.24, down 416.02 points, or 3.3 percent, the worst drop since Sept. 17, 2001. The Dow rose last week to both a closing and an intraday record.

The broader Standard & Poor's 500 index lost 50.33 points, or 3.5 percent, to close at 1,399.04, and the Nasdaq composite tumbled 96.65, or 3.9 percent, to finish at 2,407.87.

A 9 percent slide in Chinese stocks — coming one day after investors sent the Shanghai benchmark index to a record close — set the tone for U.S. trading. Major West European indexes were down by between 2 percent and 3 percent.

Investors said negative news on the U.S. economy had exacerbated the stock declines in America and Europe. The Commerce Department said Tuesday that durable goods orders at American factories fell 7.8 percent in January, more than double what analysts had expected, on average. The disappointing numbers also came a day after Alan Greenspan, the former chairman of the Federal Reserve, was quoted as saying there were signs the economy could be heading for a recession.

"It looks more and more like the economy is a slow-growth economy," Michael Strauss, chief economist at Commonfund, told The Associated Press, noting that investors were expecting the government on Wednesday to revise its estimate of fourth-quarter gross domestic product growth down to an annual rate of about 2.3 percent from an initial 3.5 percent. But some analysts said it remained unclear whether the global sell-off constituted a correction or a broader collapse.

"We believe this is just short-term and more of a challenge for those who are not yet in equities," said Thomas Körfgen, head of equities at SEB in Frankfurt. "I do not see a threat yet to the global market, as the fundamentals are positive."

Stephen Green, a senior economist and stock market analyst working in Shanghai for Standard Chartered Bank, agreed. "People are just on the edge," Green said. "It's very possible in two weeks we will be right back up there."

But analysts had cautioned for months that the markets in China, which soared almost nonstop for more than a year, appeared vulnerable.

Some investors say the drop was triggered by concern that the Chinese government would clamp down on illegal share offerings, which were among the type of investments responsible for the market's recent record increases.

The possibility of tighter investment controls in China also scared investors in companies that get a large proportion of their sales from there. With China being the world's biggest user of metals, mining stocks like BHP Billiton and Rio Tinto Group were among those most affected.

"Risk assets have been pushed so far in one direction that there had to be a pullback," said Andrew Lapthorne of Dresdner Kleinwort in London.

The benchmark Shanghai composite index, which passed the 3,000-point milestone Monday after the weeklong Chinese New year holiday, lost 268 points, or 8.8 percent, to close at 2,771.79. The Shenzhen composite index fell 66.31 points, or 8.5 percent, to 709.81.

But some analysts said China's market sell-off was not necessarily indicative of the country's economy, where growth continues to be strong.

In Europe, the DAX in Frankfurt and CAC 40 in Paris both fell about 3 percent, while the FTSE in London lost 2.3 percent. Emerging markets, some of which had also risen to records this year, tumbled as investors became skeptical that the good times would continue.

After rising 20 percent in 12 months and reaching a record last week, Morgan Stanley Capital International's emerging markets index fell 1.7 percent to 924.64 points in London. Stocks in Russia and South Africa also fell from record highs, and the Turkish stock market had its biggest decline since June.

David Barboza reported from Shanghai.

Very possible, BC. But till such a day comes, people seem to be asking why not make hay while the sun shines, no? Fluctuations like these are more often than not driven by speculation but can be excellent windows of opportunity for value investors if they can find the right price point to get in during such a window.

Just a thought.

Wall St rebounds as Bernanke calms nerves By Ellis Mnyandu
57 minutes ago

Stocks rose on Wednesday as Federal Reserve Chairman Ben Bernanke's comments that the economy was poised to grow moderately reassured investors, a day after the Dow's worst slide since the September 11 attacks.

Investors zeroed in on defensive stocks, snapping up shares of companies such as Procter & Gamble Co. (NYSE:PG - news) and Altria Inc. (NYSE:MO - news), the parent of cigarette maker Philip Morris.

Health-care stocks also rose, with shares of Merck & Co. (NYSE:MRK - news) up 2.9 percent and among the Dow's biggest gainers, after the drugmaker increased its 2007 earnings outlook.

"Bernanke doesn't want to sound like he's panicked about the economy," said Marc Pado, U.S. market strategist in the San Francisco office of Cantor Fitzgerald & Co.

"So he's reassuring today, but it's nothing different. The Fed is going to hold rates at 5.25 percent. We've also seen the yield on the 10-year (Treasury note) pop back up, reflecting that yesterday's panic was overdone."

The Dow Jones industrial average (^DJI - news) was up 79.31 points, or 0.65 percent, at 12,295.55. The Standard & Poor's 500 Index (^SPX - news) was up 10.77 points, or 0.77 percent, at 1,409.81. The Nasdaq Composite Index (^IXIC - news) was up 14.96 points, or 0.62 percent, at 2,423.15.

The yield on the benchmark 10-year U.S. Treasury note was at 4.57 percent on Wednesday, up from Tuesday's 4.50 percent, which was the lowest since late December. The note's price, which moves inversely to its yield, was down 14/32 at 100-14/32, reflecting that investors had moved some money back out of bonds on Wednesday as some fears subsided.

Stocks' steep drop on Tuesday wiped out the market's gains for 2007. But with Wednesday's rebound, the Nasdaq recovered in early afternoon to show a gain of 0.3 percent for the year, while both the S&P 500 and the Dow Jones industrial average remained in the red.

Besides Bernanke, investors also drew support from an overnight recovery in China's stock market where a sell-off on concerns about a possible government crackdown on speculation leading to overinflated stock valuations had triggered Tuesday's global rout in equity markets.

Testifying before the House Budget Committee, Bernanke said there did not seem to be any single trigger for the drop in the market.

Procter & Gamble's stock climbed 3.6 percent to $63.46 on the New York Stock Exchange. The company said it withdrew a euro bond issue. The stock was the biggest advancer in both the Dow and the S&P 500.

On the Nasdaq, shares of wireless chip maker Qualcomm Inc. (Nasdaq:QCOM - news) rose 1.4 percent to $40.67 as investors snapped up semiconductor stocks, which were among Tuesday's worst decliners. In Wednesday's session, Qualcomm was among the biggest positive influences on the Nasdaq 100.

Shares of Merck & Co. jumped 2.9 percent to $44.45 on the NYSE.

However, weak economic data limited Wednesday's gains.

The U.S. Commerce Department reported sales of new single-family homes dropped to a slower-than-expected pace in January and the National Association of Purchasing Management-Chicago said its index of Midwest manufacturing was at its lowest level since October 2002.

In addition, the government reported that the U.S. economy grew at a weaker-than-expected rate in the final three months of last year as businesses built fewer inventories and consumers spent less.

Gross domestic product or GDP, the broadest measure of overall economic activity within U.S. borders, expanded at an annual rate of 2.2 percent in the fourth quarter of 2006. That was revised down from the 3.5 percent advance in the government's previous estimate.

"If those numbers were good, the market would be up 250 points" on the Dow Jones average, Pado said.

Pado said he sees near-term support at 12,000 on the Dow,

suggesting there could yet be more selling to come and it would probably be that level that draw in more bargain hunters.

Of course the blue chips are going to stabilise. Cause China has very lil impact over them(almost all of their products are made here). Its only companies like wall-mart, K-mart, Target, ikea, etc etc which are heavily dependent upon cheap Chinese labor market that would be hit hard. Like your Dollar store where more than 90% of products are made in China.

I cant beleive CHina is going ahead in 150 miles per hr....What happen if China gets into a wreck????

Comaring to CHina I thnik Nepal is going 13 miles per hr...

US markets closed. Small rally. Was tracking ACN - down another 0.92.

Wow been real interesting last few days to say the least. DOW down another 200 pts so far today after being up around 50 yesterday. So, we are down about 500 points for the week. I guess it should come as no surprise that this correction is happening, with US and with China as well (actually more so with china since they had doubled in 06). I persoanlly don't see this more than a good correction so I hope those of you who are invested are not in a panic mode. This is good for market health as you will bring down the overly speculative stocks down but the good ones will make a strong come back after the correction period is over. I guess the way to look at it would be, if you own a stock now that is being beaten down with rest of the market, if it doesn't recover in about 3 - 6 months, you should take that as a good indication to explore your options elsewhere.

Sold most of my long term holdings yesterday as they had yielded really nice % returns. But I am holding onto the ones I recently bought including my chinese socks (still bullish on long term chinese value socks). I beleive most investors are doing the same thing; sell off and profit taking as things had been too good for too long. So, even though it might look like a huge drop and I expect it to continue for at least another week but when you put things in perspective this is by no mean market crash because you have to understand the market hasn't had a good correction since 9/11.

Ops even before i could finish typing my message here DOW's already recovered over a 100 pts. Anyways, my heart goes out to all those who are bleeding their hard earned $$$ right now but keep the hope and faith alive :-) Also, I wouldn't recommend buying anything right now...if you have funds available just stay on the sideline for a few weeks.

Hukka Nepali - Yes, it is looking like a bit of a roller coaster ride - let's see where it closes today.

Btw, Greenspan has revised his comments a bit and now thinks a recession is "not probable" : - http://biz.yahoo.com/ap/070301/japan_us_greenspan.html?.v=5

whats up C H,

man that old fart greenspan should just SHUT UP...serioulsy. you're retired already...go play with your grand kids or go work with al gore on global warming or something LOL

i'm sure he's causing a lot of pain to uncle ben's ego, since market still listens to him more than current fed cheif. or did market just made greenspan their escapegoat?? everywhere were expecting correction but things were going so good, noone wanted to be the party pooper.

anyways, it will be interesting to see how this shapes up around the end of march going into summer.

ha ha ha .. I am sure that's what Bernanki wishes too. But let him speak - a contrarian voice can, at the very least, serve as a reality check :)

Good luck with your investments.

Thought some of you might find this to be of interest. China may merely have provided the escape hatch to release the pressure building up on the market from other sources.

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Source: - http://www.economist.com/opinion/displaystory.cfm?story_id=8776220

Markets and the world economy
A walk down Wall Street

Mar 1st 2007
From The Economist print edition

The lessons investors should learn from a wobbly week in the financial markets

THE beating of a butterfly's wing? No: it was more than that. A snort from a dragon's nostrils? That is more like it. A fall of 8.8% in China's main stockmarket index on February 27th rumbled around the world, clobbering share prices just about everywhere. And when American traders looked at the news about their own economy—companies' weak orders for durable goods, worries about “subprime” mortgages, and Alan Greenspan, no less, musing about the possibility of recession—they took fright. On the worst day for American shares since March 2003, sell orders were so heavy that at one point the New York Stock Exchange could not process them all.

Although the stockmarkets commanded the headlines, more telling evidence of the jitters lay in the many other places in which people buy and sell ever more arcane flavours of risk (see article). Lately, investors have been blithely content to chase yield wherever it might be found, not least in the private-equity market (see article). This week they were reminded that this can be a dangerous game. Up, sharply, went the standard measure of stockmarket volatility, itself a tradable item. Up too went credit spreads on corporate bonds, especially the more daring stuff, as well as emerging-market debt and the price of insuring against default. And up went the yen, pushed lower these past few weeks by “carry traders” borrowing cheaply in Japan and lending for more elsewhere.

No one yet knows whether this week's shudders mark a pause before prices glide serenely upwards again or the start of a proper tumble. One apparent cause of the Shanghai slide, a rumour of a planned tax on capital gains from shares, was denied. The market steadied there on February 28th, but fell again the next day. Markets in Europe and elsewhere in Asia were nervous, though Ben Bernanke, Mr Greenspan's successor at the Federal Reserve, seemed to have soothed Wall Street. Given that people still argue over the reasons for the crashes of 2000, 1987 and 1929, it would be premature, to say the least, to tie this week's events too closely to basic economic causes.

Not made in China

You can say, though, that the fall in the Chinese market may simply have been the jolt the markets needed to take a second look at the risks they have been taking. The natural starting point is the American economy. Long before it was confirmed on February 28th, the downward revision of fourth-quarter GDP growth, to 2.2% at an annual rate, was expected. And the economy appears to have begun the year sluggishly (although bad weather has made it harder than usual to tell). There had been signs that the bond markets had twigged, with Treasury yields falling in the past few weeks. Until this week, however, the markets for shares and many other things did not seem to have taken all this on board. Now, perhaps, they have.

One sign that things are slowing down came in the form of those disappointing orders for durable goods, which fell by 7.8% in January, far more than expected even after stripping out surprisingly poor demand for aircraft. Granted, America's firms have been oddly reluctant to invest for a while, considering the cheapness of borrowing and the huge profits that have been pouring into their coffers, but this was shocking. That American companies are not confident of investing profitably is reflected in forecasts for annual profits growth, which have fallen into single figures after three and a half years in double-digit territory. Having chopped and diced the past few years' numbers and adjusted for changes to accounting rules, Albert Edwards, a market watcher at Dresdner Kleinwort, even reckons that the recent profits record of non-financial firms is no more impressive than in the mid-1990s.

Bricks and dust

A second and perhaps bigger source of concern is the housing market. The commonest view runs something like this. Yes, the housing market has slowed. Yes, the fall in residential investment has whacked the GDP figures, but the market seems to be settling down again. And consumer spending has gone along merrily. Just look at the fourth-quarter accounts: consumption was strong enough to explain the whole of the addition to GDP and more. This week the Conference Board's measure of consumer confidence hit a five-year high. So there is probably nothing to worry about.

Well, perhaps. The stock of existing homes, relative to monthly demand, remains high and the backlog of new homes is rising. The housing glut is likely to weigh on prices and on building—and hence on the economy—for a while. It is hard to believe that consumer spending will be unaffected, once homeowners realise that their houses are no longer doing their saving for them simply by going up in price. At the risky, subprime end of the mortgage market, there are already signs of distress: defaults and foreclosures have been soaring. This week Freddie Mac, one of America's two giant quasi-governmental mortgage companies, said that it would curtail its purchases of those subprime loans most likely to go wrong. The subprime market is too small to have much aggregate effect, but credit terms are getting a little meaner for mainstream borrowers too. According to the Fed, 15% of banks reported tightening lending standards in the three months to January, the most since the early 1990s.

How much should the rest of the world worry about America? It would be silly to claim that a slowing American economy would make no difference at all. But it is far from silly to observe that, on the evidence so far, the rest of the world is doing quite nicely. Indeed, in the fourth quarter of last year net trade made a handsome contribution to the gain in America's GDP, implying that foreigners pulled America along, rather than the other way around. In China, for instance, consumer spending is stronger than official figures suggest. Europe's economies, notably Germany's, look much less sleepy than they did a couple of years ago. Domestic demand is now the euro area's main engine, although some of the investment that makes up much of this is doubtless intended to produce goods for export. Signs of a tightening labour market in the euro zone (see article), though they vex the European Central Bank, may be no great worry if fatter wage packets can be combined with rising employment to feed consumer spending.

In any case, an American slowdown is only to be expected. The markets (and perhaps Mr Bernanke) may have cursed Mr Greenspan for mentioning recession. In fact, he spoke a lot of sense. He did not say recession was likely. He merely noted the truth: that corporate America's profit margins “have begun to stabilise”, a sign that the economic cycle is entering its later stages. The cycle, in other words, has not been abolished.

If this week has served as a reminder of that, so much the better. So much the better, too, if it has made investors stop and ask whether, at the returns on offer, it is wise to run after emerging-market shares, virtually any sort of corporate bond and the privilege of insuring lenders against the risk that goodness knows who will default on a loan. And if not? Then the next slip on the tightrope could be much nastier.