Vibrant overseas markets giving back some gains
Foreign stocks have been a good place for American investors to be for much of the last few years, but many overseas markets have been sliding along with Wall Street in recent weeks.
A key fear has been that the U.S. economy could slump into recession and drag the rest of the world down with it.
Highflying Chinese stocks have been hit hard since mid-October on concerns about the U.S. economy -- a leading destination for Chinese exports -- and fresh moves by the Chinese government to rein in domestic growth and damp inflation pressures.
On Thursday, with Wall Street closed for the Thanksgiving holiday, the Shanghai composite stock index tumbled 4.4% to 4,984.16. It has plunged 18% since reaching a record high on Oct. 16.
“Investors are getting increasingly pessimistic on the market outlook,” said Chen Ge, fund manager at Fullgoal Fund Management Co. “They expect the government to take tougher measures to cool the economy and deflate the asset bubble.”
Premier Wen Jiabao suggested this week that China needed to do more to prevent a bubble in stock and property prices.
The Chinese market’s downturn has weighed on Hong Kong’s market. The Hang Seng stock index in Hong Kong fell 2.3% to 26,004.92 on Thursday, and is down 17.8% since peaking on Oct. 30.
Japanese stocks also have been slumping. The Nikkei-225 index edged up 0.3% to 14,888.77 on Thursday but is down 18.5% from its 2007 high reached July 9.
Still, for U.S. investors the weak dollar has helped buffer recent losses in Japanese shares and other foreign issues.
As foreign currencies strengthen against the dollar, the value of Americans’ foreign holdings rise. The Nikkei index, for example, is down about 13% in yen year to date, but the decline is less than 6% in dollars.
The dollar’s slump has kept many U.S. investors in the black with their European stock holdings even as those markets pulled back. Through Wednesday, France’s CAC stock index was down 2.9% this year in euros, but up 9.4% in dollars.
The euro hit another record high against the dollar in European trading Thursday, rising to $1.487. It was at $1.485 in New York on Wednesday.
Many European markets edged up Thursday, boosted by a rally in big drug stocks.
Germany’s DAX gained 0.6% to 7,562.10. The index is down 6.7% from its 2007 high reached in mid-July, significantly less than the nearly 10% drop the U.S. Dow Jones index has seen from its peak reached Oct. 9.
Germany has benefited from booming industrial exports, despite the strong euro. Britain’s FTSE-100 index rallied 1.4% on Thursday to 6,155.30. But it is down 8.4% since the end of October.
“We are due for a respite from this selling. We are due for a rebound, and I sort of feel that with a bit of luck and a good wind, we could actually rebound a little bit more,” said Brewin Dolphin chief strategist Mike Lenhoff.
In Latin America, the MSCI index of regional shares gained 1.2% on Thursday, recovering from a five-day 8.1% drop, its longest losing streak in a year.
“The market has been throwing out the baby with the bathwater,” said Eric Conrads, who oversees $11 billion as chief investment officer of Chile’s AFP Santa Maria pension fund. “At these levels you start to attract people back.”
Brazil’s Bovespa index edged up 0.1% to 60,653,01. It is down 7.1% from its record high reached on Oct. 31.
But year to date, the Bovespa index is up 36%. And because Brazil’s currency, the real, has rallied sharply against the dollar, U.S. investors in the Bovespa stocks are ahead 64% this year.
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Reuters and Bloomberg News were used in compiling this report.
