Aftershock Jolts World Markets; London Is Especially Hard Hit
Caught in Wall Street’s backwash, a battered London stock market Monday suffered the largest one-day decline in its history, with an estimated 15% wiped off share values and the 100-share Financial Times index plummeting 249 points.
Other markets also were bloodied. Panic selling gripped stock exchanges in Tokyo, Hong Kong, Frankfurt, Amsterdam and other financial centers, with records set for one-day losses. In early trading today, the Tokyo market was so flooded with sell orders that the overwhelming majority of issues could not open.
At times the pace of trading in London overwhelmed the stock exchange’s new computerized trading system, which was unable to keep up with falling prices.
As caution melted into panic, uncertainty about prices caused by the delays forced many to sell at prices below market levels. At one point, the Financial Times index was down 301 points--a figure equal to roughly $100 billion--before bargain seekers moved in cautiously during the final hour of trading.
To some extent, the size of Monday’s fall was accentuated by the accumulated pressure of an involuntary three-day weekend. Last Friday’s hurricane here closed London’s financial markets, preventing any late adjustment to early signs of Friday’s fall on the New York Stock Exchange.
Fears that insurance companies would have to dump shares to pay anticipated heavy storm damage claims helped propel the decline, while news of the U.S. attack on Iranian oil installations in the Persian Gulf added further uncertainty to a market already in turmoil.
But the enormous scale of Monday’s rout here was blamed primarily on the crash of Wall Street markets, fears of rising global interest rates and deepening concern about the Reagan Administration’s inability to deal with huge trade and budget deficits.
The recent announcement that West Germany--which has one of the world’s largest, strongest economies--planned to increase interest rates also triggered concerns of further inflationary interest rate hikes by more economically vulnerable nations, including the United States.
With the British economy judged sound and stable, analysts viewed Monday’s wreckage in London as an indicator of how powerful and potentially disruptive these concerns have become globally.
“Wall Street’s performance exacerbated the mood, but what we saw today isn’t something of the last few days,” said Adrian Fitzgerald, a market analyst for Wood Mackenzie & Co. “It’s uncertainty and a lack of confidence about governments’ ability to deal with interest rates and major imbalances.”
Opinions varied among analysts whether Monday’s crash signaled the end of London’s longest bull market or whether it represented only a dramatic course correction. Some, such as Fitzgerald, claimed that high-speed computer technology had completed an adjustment in one day that might normally require a week to carry through, thus dramatizing its effect.
“This is not a wholesale flight into a bear market,” he argued. “If government bond markets don’t weaken, I would say another 100 points (drop) should bring us into equilibrium.”
Others were less confident.
If investor confidence collapses, “then we could fall a very long way,” said Graham Stradling, a director of the stockbrokers firm Kleinwort, Grieveson Ltd. “There’s really no escape from that.”
On Monday’s Tokyo Stock Exchange, meanwhile, stocks fell 2.35%. The Nikkei Stock average of 225 selected issues dropped 620.18 points to close at 25,746.56--the sixth-largest drop in the history of the Tokyo market.
In early trading today, the market was gripped by an onslaught of sell orders, with the Nikkei stock average dropping another 1,873.80 points, or 7.28%, to move to 23,872.80 during the morning session. The drop far surpassed the largest previous one-day decline set April 27, when the index fell 831.32 points.
Sources in the Tokyo exchange, the largest in the world in terms of total value of shares traded, said the market was almost completely flooded with sell orders. Trading in the market’s first section totaled a relatively small 10 million shares during the morning.
“Of the approximately 1,090 issues listed on the exchange, only about 27 were actually traded during the morning session. Despite the sharply dropping prices, there were hardly any buy orders,” said Yukio Nakatsuka, a director at Daiwa Securities.
He said Japanese institutional investors remained “calm” during the trading, but “there was considerable selling evident by foreigners.”
Securities firms said their telephone lines were flooded with sell orders, and they were forced to tell customers there was little hope of actually selling at current prices.
In Hong Kong, the Hang Seng index fell 420.81 points Monday to 3362.39, a one-day plunge of 11%. Volume totaled 4.185 billion Hong Kong dollars, or around $537 million, up 12% from Friday.
West German stock indexes posted their largest losses ever. The Commerzbank index tumbled a record 132.5 points, or 7%, to 1,876.6. The previous largest drop was a 98.5-point decline on Jan. 28, 1987.
In Amsterdam, the broad-based CBS tendency index, the bourse’s main indicator, fell a record 12.9% as it skidded to a close of 82.7 points.
Whatever the market’s future direction, there were serious concerns Monday night in London about the fate of the biggest share offering in history, scheduled for next week. The government plans to sell 31.5% of its stake in British Petroleum for 7.5 billion pounds--equivalent to $12.7 billion.
Prime Minister Margaret Thatcher’s government had hoped the offering would attract an estimated 6 million private investors, further extending her popular capitalist crusade that has seen the number of shareholders in Britain quadruple during her eight years in power.
When initially priced last Thursday, the BP shares to be offered were effectively being discounted by nearly 6%, a fact that analysts believed guaranteed the issue’s success.
However, BP’s share price sank 34 points Monday and, barring a dramatic recovery Tuesday, analysts fear that the decline will scare off enough private investors to make the offering a political failure.
Because institutions have already underwritten the entire issue and only are forced to give up shares to the public if the offering is substantially oversubscribed, the flotation is at least technically already a guaranteed success. But such a development would make institutions and ordinary investors more wary of privatization issues.
In a statement issued Monday night, the British Treasury said the BP sale would go ahead, despite the price decline.
Analysts believe that the government has little choice. Withdrawing the issue, they said, would have a disastrous impact on the market’s confidence.
Any continued slide in the London market would also take much of the shine off the political success of Thatcher’s efforts to extend share ownership, which so far have taken place in a sustained bull market.
A slide “could have a sobering effect on her converts to capitalism,” noted a senior Western diplomat here. “They are suddenly learning that markets can go down as well as up.”
