Market Capitulation

by Stubborn Mule on 24 October 2008 · 2 comments

Apparently the sky is falling, at least that is what stock markets around the world are suggesting.

The Japanese stock market fell 9.6% today, the Korean market fell 10.6% and while the Australian market “only” fell by 2.6%, the Australian dollar is now down below US$0.65. European markets are already down 6-8%. There were dramatic Government interventions in the financial markets around the world earlier this month, which markets took as good news, but it seems they were unable to sustain the initial optimism and have given in to complete despair. The Korean market once had one of the most liquid stock index futures markets in the world, courtesy of the participation of a very large number of retail investors. Today at one point there was simply no bid on the KOSPI. The term used in financial circles when markets simply give up like this is “capitulation”.

The financial crisis, which started in the US has now well and truly spread to the rest of the world. This week the focus of attention moved to Asian and emerging markets, as Argentina announced plans to seize control of private pension funds in what is seen as a desperate attempt to stave of their second default on their sovereign debt this decade. This has driven the price on credit default swaps of insuring against default by the Argentine Government to over 30%. Even the price of insurance against default by the Australian Government has soared from around 0.02% a few years ago to 0.90% today.

The charts below provide some perspective on a selection of stock markets around the world. Russia, Argentina, Iceland and Japan look particularly grim. Japan’s Nikkei index, for example, has fallen to its lowest level since 1981. It’s getting very messy out there!

UPDATE: European markets recovered some of their lost ground later in their afternoon, ending up down around 4%. US markets are currently down around 3.5%. Argentina has had another rough day and is currently down more than 7%.

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1 Neil October 25, 2008 at 3:05 am

Hi

Very messy indeed. UK GDP figures for the 3rd quarter showed a 0.5% fall. This shows how ridiculous it was for the Bank of England to hold rates at 5% for so long because they were worried about inflation. Next year it might be deflation that they have to worry about!

Neil

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