--------------------------------------------------------------------------------
Paris, Tuesday, September 19, 2000
Surging Oil Prices Hit Stocks and Euro
Iraq-Kuwait Tension Fuels Fears
--------------------------------------------------------------------------------
By Thomas Crampton International Herald Tribune
--------------------------------------------------------------------------------
<<Economic uncertainty rippled through world markets Monday, deflating global stock prices and driving the euro to a new low. The main culprit appeared to be the price of oil, which climbed to a 10-year high.
Stock markets from Frankfurt to Hong Kong to New York suffered as fears escalated that high oil prices would crimp corporate earnings and reignite inflation. Crude oil surged to $36.88 a barrel in late trading on the New York Mercantile Exchange, up 96 cents, as tensions heightened between Iraq and Kuwait, raising concern of a possible disruption of output from the Gulf region.
In Europe, the single currency sank to a low of 85.10 U.S. cents, adding to worries that a weak euro, along with rising oil prices, could stoke euro-zone inflation. Some stocks, notably those of oil companies, rose in price. But companies that are sensitive to economic cycles, such as retailers, suffered on fears that high oil prices could slow global growth. (Page 14) High fuel costs also set off another wave of protests in Europe on Monday.
Among global markets, Asian stock prices were hammered the worst, but only in part because of rising oil prices. Stalled economic restructuring and political jitters hung over several Asian markets. Stocks in South Korea tumbled 8 percent after Ford Motor's unexpected withdrawal Friday from the bidding for Daewoo Motor. Analysts said Ford's decision had thrown a cloud over South Korea's efforts to restructure its indebted companies.
In Jakarta, fears of further violence drove share prices down 7 percent in the first day of trading since a bomb rocked the stock exchange Wednesday, killing 15 people. Economic worries are escalating in Indonesia amid concern about the government's ability to quash growing unrest.
Worries about high oil prices have seeped deep into the Hong Kong market. The benchmark index sank 4.2 percent, capping a loss of 12 percent over the past seven trading sessions. While some oil-producing countries in Asia - such as Malaysia and Indonesia - stand to benefit from high prices, importers such as Hong Kong and Taiwan face bigger oil bills.
Markets in Seoul, Taipei and Jakarta all plunged to their lowest levels this year in what has become a lengthy rout of currencies and stocks somewhat reminiscent of the region's recent economic crisis. But analysts were quick to emphasize that the current turmoil bears little resemblance to the unified collapse in 1997. Stock markets are falling and currencies are weakening, but the wholesale departure of foreign investors from the region, which precipitated the 1997 debacle, is largely absent, analysts say. Today, if a country is suffering, it is due to domestic issues.
''The symptoms are the same, but the disease is different from the 1997 economic crisis,'' said Masahiro Kawai, chief economist of the World Bank for East Asia and the Pacific. ''We are now in a new era that is more nuanced, complex and country-specific.''
Still, the performance of Asia's stock market since the start of the year has been harrowing: The Seoul composite index is down 43.82 percent; the Stock Exchange of Thailand index has lost 40.42 percent; the Manila composite index, 32.79 percent, and the Jakarta composite, 39.28 percent.
The foreign-exchange markets also have battered Asia, though with nowhere near the magnitude of the 1997 crisis. The Philippine peso is down more than 12 percent against the U.S. dollar since the start of the year. The Thai baht has fallen more than 11 percent, and the Indonesian rupiah is off more than 19 percent.
In stark contrast to the gloomy market news, two development banks separately announced bright economic forecasts for the region, based on strong exports and a rise in domestic demand.
The World Bank and the Asian Development Bank both raised their forecasts for regional economic growth this year. The World Bank put the figure at 7.1 percent, not including South Asia, while the Development Bank lifted its forecast to 6.9 percent from 6.2 percent for all of Asia."
see, markets plunging by 40% on average doesn't matter, because we're in a new era... |
