Volatile trading has continued to dominate world stock markets after the Hong Kong market again fell sharply on foot of a stark warning by ratings agency Moody's about the dependence of Hong Kong banks on the local property market. And last night US stocks were on the slide again, with renewed nervousness about Asia and a financial crisis in Brazil sparked by concerns over the financial sector sending the Dow sharply lower in late trading. It closed 125 points lower at 7361.67, a drop of almost 1.7 per cent. Last night the Brazilian Central Bank denied rumours circulating in Europe and on Wall Street that several Brazilian banks were on the verge of collapse. The bank has reportedly spent billions of dollars of its reserves to prop up the real.
Earlier, in London, the FTSE-100 index recovered some ground in late trading and ended down 1.4 per cent or 69 points at 4,801.9.
The Irish market also fell, with most of the leading stocks down sharply. Dealers are bracing themselves for a protracted period of volatility where daily movements in the ISEQ Overall Index of a few per cent may become the norm.
Yesterday, the Irish market was down 1.6 per cent, giving up a substantial portion of Wednesday's recovery.
European markets opened nervously after the overnight 3.7 per cent fall in the Hang Seng Index in Hong Kong. The sensitivity of three FTSE stocks - HSBC, Standard Chartered and Cable & Wireless - to the Hong Kong market may make it more difficult for the London market to resist the fluctuations in Hong Kong.
HSBC and Hang Seng Bank yesterday suffered the indignity of a possible ratings downgrade by Moody's, with the ratings agency specifically referring to the "high level of real estate exposure at Hong Kong banks and the increased possibility of a disruptive adjustment in local real estate prices".
Moody's also expressed concern "over the possible negative impact of currency pressures on the prospects for Hong Kong trade, especially in the light of the significant current depreciation experienced in south-east Asia".
The Hong Kong government said the fine track records of banks in the territory would put them in good stead to deal with any changes in property prices caused by financial turmoil.
See also Story of the Week page 7; markets page 8; Business This Week 2, page 1
