http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN3041264220080630?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&rpc=22&sp=true
WRAPUP 1-Global stocks close dismal 1st half, outlook grim
Mon Jun 30, 2008 6:25pm EDT
By Jennifer Ablan
NEW YORK, June 30 (Reuters) - The worldwide credit crisis that burst
onto investors' radar screens nearly a year ago wiped out some $3.3
trillion in wealth from global stock market wealth in the first half
of this year, and optimism for a second-half recovery is fading fast.
Benchmark stock indexes around the world just wrapped up their worst
first half in six years or even more. For some, most notably the Dow
Jones industrial average, which dropped 14.4 percent in the six months
through June 30, it was the poorest start to a year in nearly four
decades.
Even the superpowers among stock markets in emerging countries,
including China and India, have not escaped the sell-off.
Investors have been dumping anything with risk -- stocks, emerging
market assets and cor****ate credits -- on persistent concerns that a
global slowdown will be exacerbated by quickening inflation, fueled by
elevated oil and food prices, and rising interest rates. A crumbling
outlook for cor****ate profits has recently added to the gloom.
That has left much of the world's equity markets in or near a bear
market for the first time since the dot-com bubble burst at the
beginning of the decade. And few are willing to say the worst is over.
"It is too early to call for a sustainable bottom," Mohamed El-Erian,
co-chief executive officer of California-based Pacific Investment
Management Co, or Pimco, which oversees $812 billion in assets, said
in an interview with Reuters. El-Erian has been a key voice in raising
a red flag about a credit bubble for the past year
Sentiment is no better outside the United States.
"In this environment, the stress continues to be very high," said
Irene Cheung, head of Asia local markets research with ABN AMRO in
Singa****e. "The crunch we have seen in the past year is probably not
going to go away soon."
"We're clean out of confidence and sentiment is poor," said David Buik
of Cantor Index in London.
LOSSES EVERYWHERE
Since the beginning of the year, the MSCI All-World Index
..MIWD00000PUS has fallen 11.9 percent, equal to a $3.3 trillion
haircut. While the global benchmark is down 17 percent from its record
close last October, it is not yet in bear market territory, typically
marked by a decline of 20 percent of more.
Others are not so lucky. The Nasdaq composite index, down 13.6 percent
year-to-date and off its low of the year, has been in a bear market
since February. Europe's benchmark FTSEurofirst 300 ended the first
half down 20.3 percent and has been in bear territory since January.
Asia, often touted as the new workhorse of the global economy, has
fared no better. Japan's Nikkei 225 .N225, in a bear market since
January, dropped 11.9 percent in the last six months in its worst
start to a year since 1995. Hong Kong's Hang Seng is down 20.5
percent, its weakest beginning to a year since 1994.
None, however, rival the misery felt by mainland China investors. The
Shanghai Composite has plunged 48 percent since the year began, the
worst start to a year since at least 1992.
India, too, has been stung, with the BSE index .BSESN down by just
over a third in the first half.
Not even U.S. blue chips have been spared, despite their reputations
as equity safe-havens. The Dow Jones industrial average .DJI ended
Monday's session near a two-year low, having racked up its worst start
to a year since 1970. Just 18 index points separate it from bear
market territory.
The gloom in financial markets underscores the severity of the global
credit and housing crises, which began nearly one year ago.
U.S. HOUSING MARKET THE MAIN CULPRIT
The meltdown in the U.S. housing market, pointed to as the key driver
of the decline, has resulted in more than $400 billion of write-downs
at financial institutions globally so far. The Amex Securities
Broker-Dealer Index .XBD has dropped roughly 30 percent in the first
half of the year and 40 percent from when credit markets began
fla****ng crisis signals last August.
"We are in the grips of a prolonged period of deleveraging on Wall
Street and we have yet to see the full impact on the financial markets
of the ongoing weakness in the real economy," said Pimco's El-Erian.
Indeed, the tightening lending standards that have resulted from the
turmoil among financials come as overindebted U.S. consumers deal with
a double-whammy of falling homes values and rising gasoline and food
prices.
Monday, oil prices hit a record high above $143 a barrel as mounting
tensions between Iran and Israel stirred supply concerns.
The tightening of credit conditions and the decrease in consumer
spending could eat into already slowing economic growth and push the
United States into a recession, albeit one that might be mild yet
still last longer than the eight-month recession of 2001.
'I'M STARTING TO JUMP IN'
But that isn't deterring investors from making money.
Chris Orndorff, who helps oversee $50 billion in assets as managing
principal at Payden & Rygel Investment Management in Los Angeles,
expects the Standard & Poor's 500 .SPX, which closed Monday at 1,280,
to drop another 5 percent, but he said, "I'm starting to jump in."
Orndorff said the bottom is always difficult to nail down, but he
believes financial markets are coming close to it.
"There is a lot of pessimism in the market right now and that is what
we need," he said. "We are close enough to the bottom that we are
buying and if we do drop another 5 percent, which I am expecting, I am
buying more."
One sector he isn't dipping his toes in: financials. "The steepness of
their decline is for the most part largely over, but I don't think
they'll bottom out until the fourth quarter," Orndorff said.
Peter Dixon, an economist at Commerzbank in London, goes beyond that
and says he still isn't buying equities altogether.
"We're still in catching falling knife territory. It (the market)
could go further down before it rebounds," Dixon said.
"I see no upside whatsoever," he added. "On a six-month horizon,
forget it. There's no real upside in terms of the capital gain I'm
going to get off equities."
Orndorff, however, said: "That's not necessarily a bad thing...that
some investors want out of equities. Bear markets lead to severe
selling and lots of op****tunities. I'm a buyer." (Additional re****ting
by Rebekah Curtis in London and Kevin Plumberg in Hong Kong; Editing
by Leslie Adler)
"I want justice...There's an old poster out West, as I recall, that
said, 'Wanted: Dead or Alive,'"
- G.W. Bush, 9/17/01, UPI
"I don't know where bin Laden is. I have no idea and really don't care.
It's not that im****tant. It's not our priority."
- G.W. Bush, 3/13/02
Pay your taxes so the rich don't have to.
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