Newspaper article The Christian Science Monitor

Asia, Europe Join US Wild Ride ; World Markets Dropped Sharply Yesterday - a Sign of Increasingly Close Ties

Newspaper article The Christian Science Monitor

Asia, Europe Join US Wild Ride ; World Markets Dropped Sharply Yesterday - a Sign of Increasingly Close Ties

Article excerpt

For global markets, the week had a rough start.

It's not globalization's skeptics protesting in the streets of Washington. The US stock markets crashing from the stratosphere rattled bourses around the world.

In Asia and Europe yesterday, hordes of investors learned again that a world of economic interdependence contains steep, profit- sapping pitfalls.

A day of global stock-market declines showed that what starts dropping in New York keeps plummeting in Sydney and Tokyo and Seoul and Frankfurt and Paris and London.

The price correlation of markets is increasingly tight, says Leila Heckman, with Salomon Smith Barney in New York.

Ms. Heckman, managing director of global asset allocation, says that instant communications and closer corporate ties have meant that stock markets move together more often, especially when markets decline rapidly.

European investors, for example, hear what happened in Tokyo markets when they wake up, and follow Wall Street moves later in the day.

That tighter correlation was seen in the stock market crash of 1987, during the Gulf War in 1991, and nearly three years ago in the Asian financial crisis. Both the Federal Reserve in the US and the International Monetary Fund scrambled to keep the Asian regional crisis from going global.

This time the wind is blowing the other way.

After Wall Street's record-breaking week, market-watchers spent the weekend waiting for the shoe to drop in global markets. Yesterday, Tokyo's Nikkei bench mark lost nearly 7 percent. Indices in Singapore and Hong Kong fell more than 8 percent. Trading was halted in Seoul, but the market fell 11 percent.

In London, Paris, and Frankfurt, main indexes closed down but avoided Asia's steep declines. Wall Street prices rose moderately in early trading Monday.

Companies of the so-called New Economy led the way down in Asia and Europe, just as they did in New York last week. Investors around the world seem to agree that they have had too much of a good thing when it comes to high-technology companies and Internet start-ups. But all manner of stocks were affected in Monday's sell-off.

The most profound worry in Asia is that America's boom is about to stall. Only the most isolated economies can protect themselves from an American contraction,economists say.

Japanese officials have been grumbling about a speculative bubble in US markets, and the new volatility will give them reason to raise the volume. "You're going to hear more overt critical voices," says Merrill Lynch chief Japan economist Jesper Koll.

Circumstances on Wall Street triggered the decline in Tokyo, says Susumu Takahashi, chief economist of the corporate-backed Japan Research Institute. "The US stock market was in a 'bursting bubble' situation and last week's sharp drop in stock prices was to adjust to that condition. …

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