May 17, 2004, a date that would take some time to be wiped out from the memory of investors. The markets fell, fell and fell. And it took some time to get back somewhere close to normalcy. Was this fall triggered by mere domestic incidents? Perhaps not. The article tries to go beyond the claims of the common man and tries to provide some insights as to what went wrong and how the global markets reacted to that.
An experience one would dare to even encounter in the dreams, the Bombay Stock Exchange (BSE) temporarily closed its operations, the members of the exchange, not normally presumed to be a more descent lot, took to the streets in protest. With the market reopening, there was a heavy buying by the government-owned institutions, and shares bounced back, much to the joy of the agitated group. Having fallen by 17% at one point of time, the market finished down 11%. By Monday evening, Indian shares were some 30% below their peaks when compared to earlier this year, triggered by a combination of local and international concerns. But the writing is clear on the wall. It is not just in Mumbai that investors are glum. The mood in financial circles across the globe seems to darken by the day.
It is beyond argument that May 17 was a good day for the Asian stock markets. The markets in HongKong, Japan, China, Singapore, South Korea, Malaysia and Thailand, as well as India, all recouped some of their recent losses. But speaking from a more general viewpoint, the change as compared to last year and earlier this year, when the markets were shining bright, could not be starker. The existing low dollar interest rates propelled a tidal wave of money around the world in search of higher returns. In comparison, India, which has its own charisma, attracted money, from a particular sort of investor who considered it to be the next China. Between April last year and March this year, foreign investors poured almost $10 bn into Indian shares, and from the recent journey to the zenith (in January this year) the country's shares more than doubled.
The panic in Mumbai on Monday was sparked by domestic politics (realities under investigation), namely the defeat of the ruling, reformist NDA. Investors apprehend that the new coalition government, centered on the Congress party, will have to run on the mercy of the Communist party (as far as policy- making decisions are concerned). A government that is seldom heard championing the cause of progressive economy. Hedge funds are apparently unwilling to stay around long enough to find out. But the existing Indian shares also reflect some levels of discomfort with the risky assets in general and Asian shares in particular. An index of Asian shares produced by Morgan Stanley Capital International fell by 3% on Monday, to its lowest point since November. What can be the possible reasons behind this common phenomenon observed in the markets? Let us seek some answers. |
