Trillions disappear as global stocks do the limbo

Price-watching at the Tokyo bourse. Picture / Reuters.

NEW YORK - The month-long slide in global stocks has wiped out at least US$2 trillion ($3.2 trillion) in wealth, leaving investors few alternatives to preserve their holdings aside from bonds and money markets.

Investors have been dumping stocks, commodities and emerging-market assets on growing concerns that economic growth will suffer from higher inflation and interest rates.

"It is essentially one consistent story worldwide, starting here in the United States," said Christopher Low, chief economist at FTN Financial in New York. "There is a fear that the Fed's repeated commitment to limiting inflation demonstrates a willingness to risk economic activity."

Sharemarkets have been punished since the US Federal Reserve raised interest rates for the 16th time in a row on May 10 and issued a statement saying it may need to do so again to fight inflation. Investors had expected some sign of an end to the tightening cycle.

Global markets have suffered since and strategists show little agreement about how deep and how long the sell-off will go. Bonds have been the most direct beneficiary of the equities route, with benchmark US 10-year Treasuries staging their longest rally of the year since mid-May.

The Dow Jones industrial average is off 8.2 per cent since mid-May and as of Tuesday's close had erased its gain for the year. The Nasdaq is off 12.75 per cent from its high for the year on April 19 and the Standard & Poor's 500 index has fallen by nearly 8 per cent from its May peaks.

On Tuesday, Tokyo's Nikkei average booked its biggest one-day percentage fall in two years, tumbling 4.14 per cent, wiping out more than 16.56 trillion yen ($232.2 billion) in market value from the Tokyo Stock Exchange's first section.

It was the biggest one-day point drop since immediately after the September 11, 2001, attacks on the US.

The Australian market also had its biggest fall since September 11 with A$25 billion ($29.6 billion) lost.

Both markets staged comebacks yesterday with Australia up 12 points at 4851 and Tokyo up 90 points to 14,309. The New Zealand market has been resilient in comparison, falling by only small amounts, illustrated by yesterday's 1 per cent fall to 3563.

In Europe, the FTSEurofirst 300 index has fallen about 11 per cent since May 11. The index finished at 1238.5 points on Tuesday, its lowest closing level since November 30.

Since its year-high hit in early May, the MSCI World index of global stocks has lost US$1.9 trillion in market capitalisation, nearly 12 per cent of its value and more than the economic output of the United Kingdom.

The index compiled by MSCI Barra does not account for all global stocks, meaning the total amount of lost wealth is greater still.

- REUTERS