Newspaper article The Christian Science Monitor

Dow Doesn't Hinge on Hong Kong Asian Ripple Effect

Newspaper article The Christian Science Monitor

Dow Doesn't Hinge on Hong Kong Asian Ripple Effect

Article excerpt

American investors got a hard lesson on the globalization of financial markets last week.

A four-day plunge of 33 percent in the Hong Kong stock market reverberated in the canyons of Wall Street as if it was a block away. The Dow Jones Industrial Average tumbled 320 points, or 4 percent, Thursday and Friday.

"It is interesting that people are surprised markets are related around the world," says Gregory Fager, director of the Asia department of the Institute of International Finance in Washington. The big question right now is "How related?" The volatile Hong Kong market recovered 7 percent Friday, and markets from Japan to Europe, initially shaken by the Hong Kong plunge, took the same cue. But on Wall Street, investors seemed less certain. The Dow, Friday lost another 132 points. The crash in Asia - both stock and currency markets - could be an excuse for trouble in the US market, analysts say. Globalization has meant that thousands of Western companies, led by those in the US, have invested heavily in the economies of China, Hong Kong, Singapore, Taiwan, Thailand, Malaysia, Indonesia, and the Philippines. So far, only markets in Taiwan, China, and Singapore stand relatively unscathed. Western companies with heavy involvement in Southeast Asia could see demand for their products, especially those related to technology, shrink. Also, the flow of investor dollars to the region may dry up, choking off growth. "Economic euphoria has come to a rather grinding halt," says David DeRosa, a finance professor at the Yale School of Management, New Haven, Conn. But "I don't view this as a global economic meltdown." Most analysts suspect the $7 trillion American economy will emerge nearly untouched by the Asian turmoil. The region, not including Japan, takes only 2 to 3 percent of US output. And that market will shrink, not disappear. …

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