Investors are braced for another white-knuckle ride on the markets this week as the fallout from the American sub-prime mortgage crunch starts to claim fresh victims.
Central banks in Europe, Asia and the US pumped more than US$300 billion ($399 billion) of emergency cash into the markets onFriday, to prevent a full-blown financial collapse, but failed to stem the share sell-off.
The FTSE 100 had its worst day for more than four years on Friday, and the Dow Jones closed 30 points down. In New Zealand the NZX-50 closed down 1.23 per cent and the kiwi fell more than 2c to a two-month low of US74.45c. The NZ dollar was trading at US74.38c last night.
With banks and hedge funds scrambling to tot up their exposure to sub-prime loans, analysts warned at the weekend that there was worse to come.
"You get the sense that it's not about to end in the next couple of days," said economist Matthew Sharratt, of Bank of America.
Until the uncertainty was over, he said, equities would remain vulnerable. "It's really all about sentiment."
Tim Scholefield, head of equities at Barings, said: "It would be amazing if we got through the next couple of weeks without more bad news."
With credit conditions tightening sharply, a backlog of debt-backed takeover deals is also vulnerable. Banks backing the £10.4 billion ($27.9 billion) bid for British supermarket Sainsbury, for instance, are understood to be reconsidering pledges made to Qatari-backed investment fund Delta Two.
The FSA believes that while the emergence of complicated financial instruments makes it harder to pinpoint precisely where the risk is, that risk is widely dispersed, making it is less likely that a large-scale institution will collapse.
