More than £400 million was wiped off the value of the Irish stock market yesterday following heavy selling on the London market and a weak opening session in New York. The ISEQ market fell by almost 1.5 per cent and the ISEQ Overall Index was down just over 50 points on 3,655.97.
The London market suffered its biggest one day fall in almost five years, as the weakness on Wall Street and aggressive selling of derivatives drove the FTSE down below the 4,900 level, a fall of 2.5 per cent on the day. The falls in Dublin and London were mirrored in Frankfurt where the market was down by 2 per cent.
In New York, the US market traded down by 1.5 per cent in the opening session, but dealers said that there was no heavy selling, with the market being characterised by an absence of buyers rather than any rush to sell. At the close, the Dow was down 247.37 points at 7,694.66.
On the Dublin market, the big four shares suffered most from the overseas weakness. Bank of Ireland - one of the best performers on the market so far this year - fell 20p to 802p, AIB was down 11p on 593p, and CRH fell 16p to 737p. Smurfit drifted 4p lower to 230p but was well-bid at that level.
The sell-off in the main markets yesterday was attributed to a decline in the dollar which combined with interest rate fears to persuade investors to take profits in thin summer markets.
The fall in the dollar against the deutschmark rippled through the markets, causing further weakness in US Treasury bonds, which were around a quarter of a point lower at lunchtime in New York.
Weaker bonds combined with earnings downgrades at one of the market's favourite growth stocks, Gillette, to send the Dow Jones Industrial Average sharply lower. The Dow had dropped 116.84 to 7,825.19 by 1 p.m. New York time.
European stock markets also turned tail at the weaker dollar, which fell nearly three pfennigs to DM1.818 in London. The US currency's strength has been one of the factors helping export prospects on the continent.
However, investors have recently started to worry that the Bundesbank might raise interest rates to defend the German currency and head off inflationary pressures. With many European markets closed for Assumption Day, the pressure fell heavily on Amsterdam, which dropped 4 per cent, and Frankfurt, which fell 2.8 per cent.
Adding to the worries in international markets were signs that currency speculators had turned their attention to the Hong Kong dollar, after forcing many Asian currencies to devalue in recent months. The Hong Kong stock market dropped 2.4 per cent yesterday.
All this weighed on the London stock market, with a big fall in HSBC, one of the market's biggest constituents. The FTSE 100 shed 125.5 or 2.5 per cent, in its biggest points fall in one day since the crash of 1987 and its largest percentage drop in five years.
The big fear for investors is that the global bull market, which has this summer carried the Dow past 8,000 and the FTSE 100 past 5,000, might be over. The Dow's sharp early fall yesterday followed a decline of 156 points on August 8th and another 101 points on Tuesday.
Mr Chris Carter, managing director of global equity strategy at UBS, said: "It's been a correction waiting to happen. Nowadays this is the way that markets move. There is an instant repricing in which not much selling occurs but everyone wakes up to the overpricing."
