Russia Joins the Victims as Far Eastern Fallout Rolls On
Byline: ANDREW ALEXANDER
IT WAS a bumpy day for equities right across the globe yesterday as the Indonesian crisis rippled through markets. The Footsie inevitably was affected, falling 123 points at one stage but managing to claw its way back to a loss of 92 (1.6pc) to 5826.
Moscow was hit by panic selling, with the market crashing nearly 12pc.
Fears are rife that the rouble will be devalued. The crisis is reminiscent in some ways of the Far East where currency devaluations and stock market collapses followed each other.
Continental markets were also down and Wall Street offered no encouragement.
In the Far East itself the only pleasant surprise came in Tokyo where the Nikkei was 142 points up at 15384. However, official support was suspected.
Otherwise falls of 3pc or so (5pc in Jakarta) were common, coming of course in already desperately depressed markets.
The Japanese government did not choose to support the yen, which fell past the 136-to-the-dollar rate. The failure of the G8 con- ference in Birmingham to produce any statement supporting the Japanese currency spurred dealers to sell.
It was only a few months ago that Tokyo was drawing a line in the sand at 125 yen to the dollar. The next stop is hard to predict. At this rate it could be 140 or even 150.
Such a trend could easily accelerate the outflow of Japanese savings looking for decent returns.
With official interest rates at 0.5pc, bond yields everywhere else look alluring to Japanese savers. The returns on Japanese equities are also depressing. With the economy already in recession, banks there are cutting back on loans. New figures show the number of corporate bankruptcies was up by 21pc on a year ago.
On current prospects for profits the Nikkei looks even more overvalued at 15,000 or so than it was when it stood at 39,000 10 years ago. The urge to invest overseas could spur a further fall in the yen, producing a vicious circle.
The way that the Far East crisis is plunging Japan into more trouble is plain enough. Her banks are principal lenders to other countries and industries in the region and she is the biggest trading partner of many of these countries.
There is still a widespread assumption that the crisis in the region will have a limited effect on the West. It will slow down growth a bit, bring in useful cheap exports to keep down inflation and hit Western exporters. …