The US bombings of Sudan and Afghanistan have added to uncertainty in world financial markets, already unnerved by events in Russia and the Far East. US share prices fell back late yesterday as news of the bombings broke and investors diverted funds into the safe haven of US government bonds.
Meanwhile, confidence in a number of so-called emerging markets mainly smaller markets in Latin America, Asia and Eastern Europe have been sharply hit by fears that the problems in the Russian markets will spread to their markets. Particularly hard hit were a number of Latin American markets such as Venezuela and Brazil, where longterm interest rates shot upwards. In New York last night investors reacted nervously to the bombing news. Wall Street share prices dropped by 81.87 points to 8611.41, a fall of 0.94 per cent. Meanwhile, there was support for the US dollar on the currency markets, while funds also moved into US government bonds. This rise in bond prices brought long-term US interest rates the yield on long-term bonds within a whisker of their lowest ever level of 5.5 per cent.
News of the bombings hit the US markets late yesterday, as nervousness was already growing about events across a range of emerging markets. As problems in Russia continue to mount, Latin American markets were hit hard by concerns that their currencies could be next to devalue, after the Russian rouble.
Government debt prices fell sharply in these places as investors feared that currency devaluations would lead to heavy losses. Venezuela appeared under most pressure, sparking a plunge in the country's debt prices despite the government's denial that it was planning a currency devaluation. Share prices in Caracas, the capital of Venezuela, fell by 9 per cent. Mexican markets were also hit with share prices dropping 3 per cent and the peso moving to a new low.
Analysts believe that the impact of the bombings on the market may be short-lived, provided they turn out to be once-off moves by the Clinton Administration. However, the international reaction will be closely monitored today. Meanwhile, events in emerging markets look set to increase nervousness, as investors wonder where they can safely put their funds.
Other markets to be hit yesterday were as far apart as Brazil and Bulgaria, while in Russia prices of bonds also continued to fall. Conditions in Russia remain extremely nervous. Appealing to depositors not to panic, Mr Sergei Dubinin, the central bank governor, said the bank intended to provide a 100 per cent state guarantee for all private depositors.
The central bank fears a run on the banks could destroy the financial system, turning the controlled devaluation of the rouble into a rout. The official rate fell only marginally yesterday to 6.995 to the US dollar.
