There was a widespread sell-off in Irish shares yesterday as the Iseq index followed world stock markets into a substantial slump.
The Iseq fell more than 300 points, closing down 3.8 per cent with €4 billion wiped from its value, as investors rushed to exit a stubbornly tumultuous market.
Among the larger stocks, Bank of Ireland was the heaviest faller, losing 5.5 per cent, while building materials firm CRH fell 3.8 per cent.
Insurance company FBD saw its share price plunge by almost 8 per cent. The stock is commonly held by investors in complex financial products known as Contracts for Difference (CFDs). They opted to cut their losses as panic swept the market.
The stock market turmoil started in Asia and spread around the world as markets opened yesterday morning.
After Asian stocks sold off sharply, the FTSE 100 shed 4.1 per cent as leading stocks suffered their biggest one-day slump since the bull market began in March 2003.
In the US, the S&P 500 was down 2.4 per cent in afternoon trading, standing more than 10 per cent below its July record high.
Tokyo's Nikkei 225 index fell 2 per cent, while the Korean Kospi fell nearly 7 per cent after a holiday on Wednesday, foreshadowing triple-digit point falls in the big European indices and a continuation of Wednesday's sell-off in the US.
"Credit market woes and the liquidity crunch continue to chip away at stock prices with leverage becoming a dirty word," said Tobias Levkovich, chief US equity strategist at Citigroup.
In another sign of investors cutting back on risky bets, the yen strengthened sharply, particularly against the highest yielding currencies.
The Japanese currency soared more than 6 per cent against the New Zealand dollar and gained more than 2 per cent against the US dollar by late morning in New York.
The global flight to safe haven investments was underlined when a risk index compiled by UBS rose above the peaks that followed the Long Term Capital Management hedge fund crisis in 1998 and the terrorist attacks of September 2001. The gloom raised speculation that the Federal Reserve might be forced to cut interest rate, in spite of its anti-inflation stance.
Futures markets are pricing in a quarter-point cut in the Fed funds overnight rate, currently at 5.25 per cent, even before the US central bank's scheduled meeting on September 18th.
Dermot O'Brien, economist, NCB Stockbrokers said that central banks had had no discernible success in calming equity markets or in alleviating concerns about the solvency of investment funds and financial institutions with possible exposure to bad debt.
There are now tentative expectations in the market that the European Central Bank's (ECB) base interest rate will peak at its current rate of 4 per cent and that an interest rate cut could happen in early 2008, Mr O'Brien said.
This would require the ECB's governing council to backtrack on a strongly signalled rate hike pencilled in for September 6th.
Mr O'Brien said that it would be more damaging to the ECB's credibility not to adapt its policy in light of credit difficulties in the market. -
