Translated material
Re-dive
World markets continue to fall
After a temporary rise at the end of last week, yesterday the Russian stock market resumed its decline following global indices. As a result, the RTS index fell by 2.68%, to 1978.68 points, and the MICEX index - by 4.1%, to 1635.33 points. The market may be supported by tomorrow's decision by the US Federal Reserve to reduce the base rate by another 0.5 percentage points. At least that's what analysts are counting on. However, this measure will not be able to completely solve all the problems that the world economy is currently experiencing.Due to the fall in prices for securities, investors again fled to the main currency, as was the case at the beginning of last week. As a result, the dollar on the international Forex market yesterday increased by 1.2%, to $1.459 per euro. In Russia, the American currency also rose in price: the dollar exchange rate set by the Central Bank increased by 0.9%, to 24.59 rubles. “Against the backdrop of a renewed decline in global stock indices, Russian blue chips opened with a downward gap,” notes Dmitry Roenko, head of the investment department at Olma Investment Group. “Having opened with a downward gap, the market in the first hours tried to return to Friday’s levels, but to no avail,” says Ivan Polikanov, chief economist of the stock exchange operations department of Gazenergoprombank.
“A bearish trend now prevails on world markets,” says Dmitry Zelentsov, senior analyst for financial markets at Profitcapital Investment Company. -- Adding to investors' concerns about problems in the United States are concerns about a possible recession in Japan. Against the backdrop of negative statistical indicators, Asian indices yesterday showed record monthly lows since September 2001. In addition, as a result of profit-taking and OPEC's announcement of an increase in production, oil prices fell. Because of this, the papers of oil companies suffered the most: LUKOIL, Surgutneftegaz, Tatneft and Rosneft.
Earlier, analysts at the investment bank Goldman Sachs expressed the opinion that the Japanese economy could already go into recession, in particular due to declining exports and low consumer spending. As a result, the Nikkei Tokyo Stock Exchange Index fell by 3.97% to 13,087.91 points. South Korea's KOSPI stock index lost 3.85%, Hong Kong's Hang Seng lost 4.25%, and China's Shanghai Composite fell 7.19%. Yesterday, at the beginning of trading in the US, the Dow Jones index fell by 0.21%, to 12181.00 points, the NASDAQ index - by 0.37%, to 2317.63 points.
The situation on world stock exchanges remains unstable, which does not yet allow us to predict a quick resumption of growth in the domestic market, Mr. Roenko emphasizes. Technical analysis data does not exclude the possibility of a deeper downward correction. “Meanwhile, if buyers return to the stock markets, growth in the RTS index may turn out to be more rapid than in stock indices of other emerging markets: the Russian market looks undervalued in relation to its closest analogues,” the expert believes.
A meeting of the US Federal Reserve System will be held in the middle of this week, recalls Mr. Zelentsov. Futures show 100% confidence among market participants that the rate will be cut by 50 basis points. “This will provide significant support to the market, and if international markets do not present any surprises, growth will begin on Wednesday-Thursday,” he says. -- The leaders will be the securities that are currently the most undervalued, i.e. predominantly oil and gas sector.”
Earlier, on January 22, the Fed urgently reduced the rate by 0.75% to 3.5% per annum, but this does not yet save the markets from falling. Meanwhile, previously, the Fed’s actions often pushed indices up, stopping them from falling even more significantly. The Wall Street Journal yesterday cited the opinions of economists indicating that the current problem of falling stock indices is far from the only one. “The difficult situation in the credit market is complicated by unstable corporate profits and the presence of large debts among consumers,” the publication notes.
According to Yale University economics professor Ray Fair, the Fed should focus on the economy, not the stock markets. “It’s strange to think that when making decisions, the Fed is guided by the situation in the markets,” the WSJ quotes the economist as saying. In his opinion, the American regulator should pay more attention to the inflation level. "By cutting rates, the Fed is sending the wrong signal to investors, encouraging them to take excessive and unnecessary risks," Mr. Fair warns.
According to The Financial Times, the managing director of the International Monetary Fund, Dominique Strauss-Kahn, also believes that the rate cut is not enough to overcome the consequences of the current problems in financial markets. “I don’t think we will be able to overcome the crisis with monetary policy tools alone,” he says. “Perhaps a new budget policy will be an adequate response to the crisis.”
It is characteristic that until recently the IMF was firmly committed to reducing budget deficits in the United States and Japan, which was necessary to reduce the huge imbalances accumulated in the foreign trade of these countries.
The change in this concept surprised former US Treasury Secretary Lawrence Summers. “For the first time in 25 years, the head of the IMF is calling for an increase in the budget deficit,” he said. “In my opinion, this characterizes the seriousness of the current situation.”
Harvard University professor Ken Rogoff, who previously worked as the chief economist of the IMF, expressed the opinion that a sharp weakening of fiscal discipline in most cases does more harm than good. “It could create an unsustainable burden on the country's budget that will require painful adjustments in the long term,” Mr. Rogoff explained.
The number of jobs in the City of London, the UK's financial centre, will fall by around 20,000 due to the global financial crisis. The English newspaper Sunday Telegraph reported that Experian, a research and forecasting organization for both government and private companies, predicted a 5% fall in employment compared to its previous forecasts for financial activity in 2008. This means that from 10 to 20 thousand people will lose their jobs. With around 400,000 people employed in the financial sector in London, a fall of this magnitude would have an impact on the wider economy. Layoffs could cause stock prices to decline and harm industries such as IT and telecommunications. REUTERS