This week we have once again witnessed that the world is one global market place, and stock markets cannot be viewed in isolation. Tuesday's 9% plunge of the Chinese Shanghai index sent stocks in the US and Europe falling. Dow Jones reacted with a 400 points drop, erasing last week's record high, S&P 500 and NASDAQ also noted substantial losses. (More on that: http://online.wsj.com/article/SB117260706682921020.html and: http://blogs.wsj.com/marketbeat/2007/02/27/china-no-its-not-just-china/ ). The situation is even more serious due to the fact that Far Eastern markets, Chinese in particular have been an attractive place for US and European based capital lately. However, many have probably forgotten that this market carries high volatility along with the attractive returns.
Alan Greenspan also contributed to investors insecurity as the word recession was among the ones he used while speaking to investors in Hong Kong (More on the possible effects of this speech: http://www.ft.com/cms/s/2ad62eba-c6d1-11db-8f4f-000b5df10621.html ). Mr. Greenspan's words were interpreted as a prediction of a recession in this year. The former FED's boss's expert status added weight to the claim and certainly did not help the stock markets, which reacted severely to mixed economic data (See: http://online.wsj.com/article/SB117249340786119234.html ).
Another possible reason contributing to the drop is a apparent change in investors attitudes, which seem to change towards putting capital into less risky investments than before. (The Wall Street Journal reports on that: http://online.wsj.com/article/SB117271330926722830.html?mod=home_whats_news_us ).
Just a Shower, or the eye of the Storm?
All in all, the question rises: was this just a single event, or are encountering a bearish period? US Federal Reserve Chairman Mr. Ben Bernake came to the rescue first on Wednesday, when he confirmed his previous US economy outlook for "moderate growth" and referred to the financial markets as being "closely monitored" and "working well" (See: http://online.wsj.com/article/SB117267441551822115.html ). After that, Mr. Greenspan has down-played the tone of his previous utterance (More on that: http://online.wsj.com/article/SB117272314862823068.html ).
The US market reacted well to those news and even though they did not rise, they stopped the rapid losses, as of now all the major US indices have only very marginal losses (See: http://online.wsj.com/article/SB117275252509823347.html?mod=home_whats_news_us ). The fall in the Treasury bills price may indicate that the investors a willing to bear some risk again.
The long term question remains - are the stock market players going to be more risk averse after this weeks events? Regardless of that - if the moderate growth economic outlook holds for now, investors should be able to record gains on their securities in an intermediate time span.
Alan Greenspan also contributed to investors insecurity as the word recession was among the ones he used while speaking to investors in Hong Kong (More on the possible effects of this speech: http://www.ft.com/cms/s/2ad62eba-c6d1-11db-8f4f-000b5df10621.html ). Mr. Greenspan's words were interpreted as a prediction of a recession in this year. The former FED's boss's expert status added weight to the claim and certainly did not help the stock markets, which reacted severely to mixed economic data (See: http://online.wsj.com/article/SB117249340786119234.html ).
Another possible reason contributing to the drop is a apparent change in investors attitudes, which seem to change towards putting capital into less risky investments than before. (The Wall Street Journal reports on that: http://online.wsj.com/article/SB117271330926722830.html?mod=home_whats_news_us ).
Just a Shower, or the eye of the Storm?
All in all, the question rises: was this just a single event, or are encountering a bearish period? US Federal Reserve Chairman Mr. Ben Bernake came to the rescue first on Wednesday, when he confirmed his previous US economy outlook for "moderate growth" and referred to the financial markets as being "closely monitored" and "working well" (See: http://online.wsj.com/article/SB117267441551822115.html ). After that, Mr. Greenspan has down-played the tone of his previous utterance (More on that: http://online.wsj.com/article/SB117272314862823068.html ).
The US market reacted well to those news and even though they did not rise, they stopped the rapid losses, as of now all the major US indices have only very marginal losses (See: http://online.wsj.com/article/SB117275252509823347.html?mod=home_whats_news_us ). The fall in the Treasury bills price may indicate that the investors a willing to bear some risk again.
The long term question remains - are the stock market players going to be more risk averse after this weeks events? Regardless of that - if the moderate growth economic outlook holds for now, investors should be able to record gains on their securities in an intermediate time span.
