[Marxism] World stocks in meltdown

[Greg McDonald]

Wednesday August 1, 7:34 PM
World stocks in meltdown over US economy fears

European and Asian stock markets plummeted Wednesday, mirroring heavy  
losses the previous day in New York, on mounting fears that weakness  
in the US housing sector could infect the world economy.

In London, Frankfurt and Paris the main share indices were down  
almost 2.0 percent nearing the half-way stage.

The yen meanwhile hit a four-month high against the dollar and oil  
traded close to an all-time peak in New York as investors exited  
risky investments and turned to safe-havens, dealers said.

Wall Street took a pounding Tuesday, with its three main markets  
closing down more than 1.0 percent as news of spreading troubles in  
the US mortgage sector prompted investors to bank profits.

Japanese stocks slumped by more than two percent on Wednesday, with  
the Nikkei-225 index ending below 17,000 points for the first time in  
more than four months.

Economists said there were growing jitters about the potential  
fallout from problems in US subprime lending sector, where mortgages  
are provided to people with questionable credit histories.

Analysts are concerned that growing mortgage defaults will hurt banks  
and finance companies enough to curb the availability of credit on  
which the economy feeds.

That, in turn, could affect private equity groups because their  
takeover bids are often financed by large amounts of bank debt.

"The central issue that concerns the equity market is really the  
extent to which this whole subprime fallout will affect a general  
credit squeeze and reverse the expansion we have seen in the global  
economy," said Mike Lenhoff, chief strategist at Brewin Dolphin  
Securities in London.

"There is this worry now that the ease with which lending has taken  
place and the ease with which there has been access to borrowing to  
finance the global economy is being unwound."

No market was immune to plunging equities on Wednesday, as Hong  
Kong's key Hang Seng Index closed down 3.15 percent, China share  
prices shed 3.81 percent and Indian's main equity market plunged 3.96  
percent.

Sydney's main stock market meanwhile dived 3.3 percent after market  
favourite Macquarie Bank said two high-yielding funds faced losses of  
up to 300 million dollars (258 million US).

Shares in Macquarie Bank, known for its deal making and massive  
executive pay-checks, shed 10.7 percent as a result, enough to prompt  
Australian Treasurer Peter Costello to offer assurances that all was  
well.

US stocks had powered ahead on Monday as investors shrugged off  
unease about a widening economic crisis that led to last week's  
bruising for the equity market.

"We're likely to see the volatility persist for a while," Lenhoff said.

"We'll have some good days, we'll have some bad days and eventually  
we'll see a slightly clearer picture of what this subprime fallout  
really means for the banks as well as for the credit markets.

"In turn that will hopefully help the credit markets to settle down  
and move ahead," he added.

Elsewhere on Wednesday, financial markets were keeping a close eye on  
oil prices, as New York crude remained close to an historic high.

Analysts say the New York oil price could strike a new all-time peak,  
above its current record of 78.40 dollars a barrel, should the US  
Department of Energy reveal on Wednesday a further drop in US energy  
inventories.

Ahead of the DoE's inventory report, New York crude stood at 77.72  
dollars a barrel, down 49 cents.

"There is uncertainty in the market," Seymour Pierce analyst Amit  
Thakar said on Wednesday. "Investors are concerned there is still bad  
news to come from the US subprime market as they remain unsure about  
the extent to which hedge funds and investment banks have been  
impacted."

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