LONDON — Asian and European stock markets plunged Monday after declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.
All U.S. financial exchanges are closed Monday in observance of the Martin Luther King Jr. holiday, but U.S. stock index futures were down sharply suggesting investors are not putting much hope on Wall Street leading a rebound when it returns to business.
The U.K. benchmark FTSE-100 dropped 3.9% to 5,673.1; France's CAC-40 Index plunged 4.5% to 4,861.2, while Germany's DAX slumped 5.35% to 6,922.7.
Stock markets have been in full retreat this year over the economic fears. The broad U.S. Standard & Poor's 500 index had its biggest weekly fall since July 2002 last week.
The Dow Jones industrial average is off 8.8% for the year. The S&P 500 index is down just under 10%, and the Nasdaq composite has fallen 11.8% in 2008.
The FTSE is off almost 12% this year.
Since the start of the year, Japan's Nikkei index has declined 13%, while Hong Kong's blue-chip index is down more than 14%. Even China's Shanghai index — which nearly doubled last year — has fallen 6.6% since the beginning of the year and nearly 20% from its all-time closing high on Oct. 16.
Many indexes are now more than 20% below their recent cycle peaks, a traditional sign that what is going on is not just a correction but the start of a bear market.
Investors dumped shares because they are skeptical that an economic stimulus plan President Bush announced Friday would shore up the economy, which has been battered by housing and credit problems. The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.
"We've taken our lead from the Asian markets who have not been impressed by the U.S. There's debate if there's going to be a recession in the U.S. I don't think there's much chance of that though," said Richard Hunter an analyst at Hargreaves Lansdown Stockbrokers in London.
Concerns about the outlook for the U.S. economy, a major export market for Asian companies, has sent the region's markets sliding in 2008. Just last Wednesday, the Hang Seng index sank 5.4%.
"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."
Japan's benchmark Nikkei 225 index slid 3.9% to 13,325.94 points, its lowest close in more than 2 years. China's Shanghai Composite index plunged 5.1%.
India's benchmark stock index tumbled 7.4%, while Hong Kong's blue-chip Hang Seng index plummeted 5.5%, its biggest percentage drop since the Sept. 11, 2001, terror attacks.
"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.
"Maybe there's still some wariness about politicians are able to come up with a compromise and act sufficiently quickly" on a stimulus package, Cohen said. "I think the impact would be marginal anyway."
Investors took cues from the negative reaction to the president's plan on Wall Street on Friday, when the Dow Jones industrial average slid 0.5% to 12,099.30, bringing its loss for the year so far to nearly 9%.
Traders also have shrugged off assurances from Federal Reserve Chairman Ben Bernanke that the U.S. central bank is ready to act aggressively — which means a likely big interest rate cut later this month — to help the sagging economy.
Some analysts predict that Asia won't suffer dramatically from a possible U.S. recession because increased trade and investment within Asia has made the region less reliant on the United States than in the past. Excluding Japan, 43% of Asia's exports go to other nations in the region, Lehman Bros. calculates, up from 37% in 1995.
But on Monday, uncertainty and pessimism reigned.
In Tokyo trading, exporters got hit hard, partly because of the yen's recent strength against the dollar. Toyota Motor (TM) lost 3.3% and Honda Motor (HMC) sank 3.4%.
In Hong Kong, Bank of China (BACHF) dropped 6.4% and China Construction Bank (CICHF) slid 7.8%.
India's benchmark Sensex index fell 1,353 points, or 7.4% — its second-biggest percentage drop ever — to 17,605.35. At one point, it was down nearly 11%.
The decline hit companies across the board, with power utility Reliance Energy (RELFF) falling 16.4%. Major software company Tata Consultancy Services slid 7.6%.
"A gloomy U.S. climate has affected the global markets. Even if those markets recover, it will take sometime for the recovery to reach India because today's fall has been so drastic," said Jayant Pai, of the Mumbai investment company IL&FS.
Pai and others suggested that the declines could lead to a buying opportunity.
"The sell-off today takes us close to the bottom," she said.
But leading investment bank Morgan Stanley said Monday that was not the case now, at least as far as Europe was concerned.
"We are not compelled to buy yet despite bearish sentiment," its European equity strategy team said in a note. "We continue to prefer cash over equities."
Recent polls show institutional investors with large cash holdings, a sign of deep concern about the future direction of assets.
Australian stocks in long losing streak
The All Ordinaries Index closed down 169 points, or 2.91 percent, at 5,631 and the ASX 200 dropped 167 points to 5,580.
The financial sector was hit hard with Commonwealth Bank shares shedding 4.5 percent to $44.26 and National Australian Bank, Westpac and ANZ all losing more than 2 percent.
Funds management-related stocks also fell on concerns about debt levels with the Allco Financial Group plummeting 35 percent to $2.70.
In the mining sector, Rio Tinto erased gains made on Friday, falling nearly 8 percent to $99.56. BHP Billiton ended 4.3 percent lower at $29.
Oil and gas producer Woodside Petroleum slipped $1.80 to $39.63 and a barrel of West Texas crude was fetching $90.55.
Spot gold traded at $882 an ounce.
The Australian dollar was buying 87.41 U.S. cents, 44.8 British pence, 93.31 Japanese yen and 60.16 euro cents.
'There's just pure panic here,' one trader said.
WestLB's announcement of a full-year loss of about 1 bln eur and of additional writedowns of almost 1 bln eur confirms that skepticism towards financial stocks is justified, another trader said.
'On the one hand, we have difficulties with the financial stocks, which cannot be assessed by the market at the moment,' an analyst told Thomson Financial News partner dpa-AFX.
In addition, fear about reports that Bank of China may announce significant writedowns on its subprime-linked investments weighed on sentiment, he added.
At 3.22 pm, the DAX was down 431.93 points or 5.91 pct at 6,882.24, having so far today traded between 6,762.77 and 7,292.68.
The MDAX lost 337.87 points or 4.01 pct to 8,091.61, while the TecDAX was down 50.62 points or 6.39 pct at 741.72.
DAX futures slipped 448.50 points or 6.08 pct to 6,932.50, while bund futures up 0.56 points or 0.48 pct higher at 116.81.
The euro was trading at 1.4489 usd, unchanged from London midday trade.
Hypo Real Estate led today's underperformers, losing 2.58 eur or 11.70 pct to 19.47, after Deutsche Bank (NYSE:DB) cut its price target on the stock to 22.40 eur from 24.00 eur. Last week, the brokerage lowered its recommendation on the shares to 'hold' from 'buy', citing additional earnings risks through 2010 on the current credit market environment.
Deutsche Postbank declined 5.15 eur or 9.04 pct to 51.85, while Allianz fell 11.18 eur or 8.39 pct to 122.01, on fears over the possible impact the worldwide financial crisis may have on the German insurer's banking unit Dresdner Bank.
E.ON plunged 12.88 eur or 8.83 pct to 132.92
Frankfurt exchange operator Deutsche Boerse dropped 9.60 eur or 8.30 pct to 106.05.
Major outperformer of the DAX was Continental, retreating 0.44 eur or 0.58 pct to 75.58.
Other automotive stocks, too, were among the group of major outperformers, with supplier Volkswagen decreasing 2.00 eur or 1.33 pct to 148.00, and BMW falling 1.08 eur or 2.87 pct to 36.60.
Infineon ceased 0.08 eur or 1.19 pct to 6.64, while Deutsche Telekom shed 0.36 eur or 2.39 pct to 14.70.
Over on the MDAX, SGL Carbon led German mid-caps lower, dropping 3.04 eur or 9.50 pct to 28.97.
Rheinmetall was the only advancer, rising 0.22 eur or 0.49 pct to 44.85.
TecDAX-listed Q-Cells lost 8.84 eur or 13.31 pct at 57.60.
At the other end, GPC Biotech gained 0.15 eur or 7.25 pct to 2.22.
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