MUMBAI: Global stock markets went to hell in a handcart as equities across the Wall Street, Asia and Europe traded in a sea of red, wiping off a staggering $4 trillion investor wealth. Why? Because the Dow Jones Industrial Average tumbled 1,100 points on Monday – erasing all of its 2018 gains – fearing rising inflation, interest rates, stiffening bond yields, lower tech earnings and elevated valuations.
The decline translates to just 5 per cent, lower than 13 per cent seen in 1929 or in 1987 when it knocked out 20 per cent off the stocks’ value. But Monday’s drop – the biggest one-day fall in six years – was enough to freak out Asian and European bourses.
Benchmark Sensex lost 1,275 points within minutes after the opening bell on Tuesday, while the NSE Nifty crashed 390 points – both losing over 3 per cent each. Other Asian indices, too, witnessed the carnage with Japan’s Nikkei paring 4.73 per cent loss and Hong Kong’s Hang Seng shedding 5.12 per cent. Joining the sorry parade were European shares with London’s FTSE hiting a one-year low in morning trade.
US President Donald Trump, who banged the drum that markets were up 50 per cent under his watch, remained uncharacteristically quiet, while Vice President Mike Pence’s comment that the plunge was ‘simply the ebb and flow of the stock market,’ failed to do the trick with US stocks heading for its biggest three-day slide since 2015. West Texas crude dipped 2.2 per cent to $64 a barrel, and gold advanced 0.1 per cent as investors retreated to the yellow metal. Put another way, commodities (oil, gold and metals) may escape the worst market mayhem.
While some call it a ‘flash crash’, others believe it’s taking the ‘irrational exuberance’ out of the way. But all agree on one thing: stocks are headed in a systemic direction ie., downward, but it’s more of a correction than a catastrophe.
“Bond yields (US) have been rising due to falling unemployment and rising wages and the rebound in energy prices added fuel to the rising interest rates argument. But to argue that a secular bear market for bonds (and by extension, equities), is in place would be a bit of a stretch,” said Hou Wey Fook, Chief Investment Officer, DBS.
Indian investors saw a wealth erosion of `2.72 lakh crore with Sensex closing at a one-month low of 34,195.94. Participants were also anxious ahead of the RBI policy meet outcome on Wednesday.