The crisis in Russia is continuing to devastate stock markets around the world, with growing fears in the markets that a full-scale economic collapse there will trigger further sharp falls.
The New York stock market suffered its biggest points fall since Black Monday 1987 yesterday as share prices fell by over 4 per cent with investors moving into the perceived security of US treasury bonds.
The Dow Jones index of US shares closed down 357.36 points at 8165, a fall of 4.19 per cent, while the broader-based Nasdaq US share index dropped by 4.6 per cent. This sharp decline in US share prices is likely to mean continued instability on stock markets, and analysts expect further weakness today as investors move to put their money into more secure vehicles.
It remains to be seen whether the new measures promised late last night by the Russian Prime Minister, Mr Viktor Chernomyrdin, to stop the rouble's fall and protect the economy can go any way to restore investor confidence. He said last night that the International Monetary Fund was backing the new measures. Yesterday, major European markets fell by 3-4 per cent but stock markets in emerging economies in Asia, Central and Eastern Europe and Latin America took a pummeling. This happened as expectation hardened that the flight out of Russian equities will be followed by similar moves out of equities in the emerging markets.
And although the Irish stock market has little direct exposure to the Russian crisis, Irish shares suffered more than most yesterday with almost £2 billion wiped off their value as the ISEQ index fell by over 4 per cent. Since it reached its alltime high last April, the Irish market has fallen 18 per cent with more than £7 billion wiped off the value of shares.
The trigger for yesterday's plunge on the markets was the decision by the Russian central bank to end its support for the rouble. As a result, Russian equity prices imploded in a market that traders said is now "clinically dead". The main Russian stock index fell 17 per cent and forced two suspensions of trading. But dealers said the Russian investment climate was so poisoned by the economic and political crisis that shares were virtually worthless.
Even before the Russian market opened, shares in the Far East fell sharply. The Nikkei index in Tokyo dropped 3 per cent to its lowest level for six years as investors took fright over the Russian crisis as well as concern about the deadlock in parliament over the legislation to deal with possible future Japanese bank failures.
The crisis in Russia dealt a hammer blow to beleaguered European stock markets, which were further undermined by the early slide on Wall Street. In London, the FTSE 100 index of leading shares lost 3.2 percent, to close at 5368.5 points while in Frankfurt, the DAX 30 index fell by 3.26 percent to 5,060.84 points. In Paris, the CAC 40 index showed its sharpest fall since October 1992, losing 4.28 per cent to 3,745.64 points. Amsterdam's AEX index fell by 2.18 per cent to 1,108.82 points. Madrid's Ibex-35 index fell by 5.9 per cent, and the Athens market lost 7.7 per cent.
Eastern European stock markets also suffered heavily and the Budapest market fell over 14 per cent, the second biggest fall in the 10-year history of the Budapest exchange.
Stocks also plummeted throughout Latin America following a rout in global shares on concern Russia's deepening economic woes will drive investors out of emerging markets and put pressure on the area's vulnerable currencies. The markets in Brazil and Argentina were both down 10 per cent.
Venezuelan and Mexican equities were also hard hit on speculation that they are two of the countries most vulnerable to a financial fallout because of their perceived currency problems, economists said.
"The turmoil is hitting Mexico very dramatically," said Lawrence Goodman, chief economist at Banco Santander in New York. He said the country's comparatively high inflation rate make the currency more susceptible to devaluation fears.
