London Reels; Tokyo Rallies After Plunge
Prices on the Tokyo Stock Exchange suffered a record setback Tuesday and passed the reverberations onto the London market, where the plunge in prices eclipsed the previous day’s record fall. But early trading today in Tokyo offered some relief, with stocks recovering more than a third of Tuesday’s loss.
The selling fever Tuesday in Tokyo was matched by chaotic, often-frenzied trading on the London Stock Exchange, that left the City, as London’s financial community is known, in a state of stunned confusion.
Prices also plummeted on the Sydney exchange, falling a record 24.9% and erasing the equivalent of $39 billion from the value of Australian stocks. Sharp declines also were recorded on exchanges in Taiwan, South Korea, Singapore and Malaysia. But in Hong Kong, the stock market was silent. The exchange did not open Tuesday, and officials said they would keep it shut for the rest of the week to prevent panic selling.
In Tokyo on Tuesday, sell orders swamped dealers even before the market opened. Not until 25 minutes into the session was the first transaction completed. By the end of the day, there were more than 475 million sell orders without buyers. Volume was only 480 million shares, about half the normal total.
The Nikkei average of 225 stocks lost 14.9% of its value, falling 3,836.48 points to close at 21,910.08. Not since March 5, 1953, when it was reported that Soviet leader Josef Stalin was seriously ill, had stocks in Japan lost more than 10% of their value in a single day.
Tuesday’s decline was the largest ever, more than four times the previous single-day decline of 831.32 points recorded April 27.
In morning trading today--again in reaction to New York--the market reversed itself and gained 1,376.86 points, an increase of 6.28% from the Tuesday close. The stock average rose to 23,286.94 points.
On the London Stock Exchange, the Financial Times index of 100 stocks plummeted 250.7 points Tuesday, or 12.2%, surpassing the previous day’s crash of 249.6 points, or 10.8%.
The index finished the day at 1,801.6, down 500.3 points or 21.7% in the past 48 hours. Statements by Chancellor of the Exchequer Nigel Lawson labeling the British economy sound and the market crash “absurd” were swept aside by sellers as Europe’s biggest equities market hitched itself firmly to Wall Street’s downward slide.
Higher than expected private bank lending figures, which normally would have only a minor influence on the market, accelerated the decline.
At one point about noon, the Financial Times index had dropped by more than 304 points. The market climbed 230 points with news that Wall Street had opened to the upside. Share prices also showed temporary signs of recovery in trading on stock exchanges in Amsterdam, Frankfurt and other European financial centers. But the rebounds were short-lived, and European share prices were dragged down anew when Wall Street’s rally early in the session faltered.
“Wall Street remains the key,” summed up Peter Fuller, an analyst at the London brokerage James Capel & Co. “You can cite lots of fundamentals why London shouldn’t follow (Wall Street), but the dust needs to settle first. This is an emotion-driven atmosphere.”
Michio Takeuchi, president of the Tokyo Stock Exchange, also blamed the Tuesday decline in Japan on what had happened in New York.
“It’s not due to economic factors,” he said. “Overall, the worldwide economic performance is good. Especially, Japan’s economy is expanding. We must watch developments, but I think conditions will eventually calm down.”
Takeuchi added that he has no intention of closing the Tokyo market.
Tsuneo Fujita, director of the securities bureau at the Finance Ministry, said the collapse of the markets was “not (a) rational judgment from present world economic fundamentals.”
Finance Minister Kiichi Miyazawa echoed that thought: “Japan’s economy is doing well and on the way to further improvement. I see no worry. Stocks appear to have fallen because they rose so much until now.”
Lawson, Miyazawa’s British counterpart, tried to reassure small investors and halt the market’s downward spiral with similar comments about the British economy. Lawson appeared on both British television networks to stress the underlying health of the British economy and pledge no immediate rise in interest rates.
“The British economy is in good shape, there is no reason for this fall,” he insisted. “There is absolutely nothing in the events of the last two days that should put upward pressure on interest rates.
“My advice to millions of small investors who have entered the stock market in the past few years would be to keep calm. There is absolutely no reason not to do so.”
Still, many brokers and dealers believed that no matter what happened now, the markets would never again be quite the same.
“The shock is so much that even if the recovery is swift, people are going to be much more cautious,” analyst Fuller said.
As on Wall Street, the speed of the crash raised questions about the effect of computerized dealing.
“This is the first big fall with the new (computerized dealing) system and people will be looking at it and analyzing closely to see what happened,” commented a London Stock Exchange official.
Computerized dealing in London, a year old next week, effectively eliminated the trading floor.
The British government’s latest share offering of about one-third of British Petroleum--the largest single block ever offered on a stock market--for the equivalent of about $12.5 billion opened Tuesday amid disastrous conditions.
The share price offer of 330 pence amounted to a 6% discount when it was announced last week, but after BP closed Tuesday at 290 pence, the offer price represented a premium of 12%. The offer closes to domestic buyers Thursday and then opens to foreign investors.
At the Tokyo Exchange, officials tried to make buying easier Tuesday by announcing that they are expanding, effective today, the margin of credit allowed buyers, to 50% from 30%. Brokerage firms were instructed to advise customers to act calmly and cooperate in order “to avoid chaos in the market.”
Masaharu Gotoda, chief secretary of the Cabinet, tried to reassure investors by pointing out that the decline was in the stock markets and was not affecting foreign exchange trading.
“I don’t think this will lead to a collapse of the international monetary system,” he said.
The dollar gained 1.45 points Tuesday in trading on the Tokyo Foreign Exchange Market, rising to 142.80 Japanese yen from Monday’s closing of 141.35 yen.
Kazuaki Harada, managing director of the Sanwa Research Institute, said the stability of the dollar on foreign exchange markets and a decline in interest rates on U.S. Treasury bonds show that “confidence in the U.S. economy and the dollar remains firm.”
“Therefore,” he added, “the possibility of a panic occurring is small.”
While most analysts agreed that panic selling in New York triggered the decline in Tokyo, they also pointed out that the ratio of prices to earnings per share had already created a feeling that Japanese stocks, spurred by months of ever-increasing trading, were overpriced.
More and more Japanese have been entering the stock market as interest rates on savings accounts have plummeted to near-record lows.
Pointing to the reservoir of sell orders that had not been executed Tuesday, Fumio Nagano of Nomura Securities predicted that prices could fall still further. But he said the basic trend in Tokyo would be determined by what happens in New York.
Sanwa’s Harada warned that an escalation of hostilities between the United States and Iran, with a subsequent increase in oil prices, plus a poor sale of $28 billion worth of bonds the U.S. Treasury plans to auction in early November, could exacerbate conditions.
He noted that Japanese institutional investors have been buying more than 40% of long-term Treasury bonds and said that a drop in their orders would force up American interest rates, triggering fears of inflation and a further decline in stock prices.
Sam Jameson reported from Tokyo and Tyler Marshall from London.
