Monday markets in Asia are generally seeing a slight recovery from the lows posted last week. Although the gains recorded today didn’t even come close to correcting the massive selloff, it’s nice to see that there is a pause in the panic.
The gains come after a weekend of strategy sessions which culminated in governments worldwide stepping up and promising to invest in banks, to shore up the liquidity crisis that has paralyzed the financial markets in the past few weeks.
Hong Kong’s Hang Seng Index, which tumbled more than 7 percent Friday, rose about 478.80 points higher, or 3.24 percent, at 15,275.67.
In Australia, the S&P/ASX200 index was up 4.71 percent in response to a government plan to guarantee bank and other lender deposits for three years. The benchmark plunged over 8 percent on Friday, its biggest single-day fall ever.
South Korea’s benchmark gained 2.8 percent and Singapore’s key stock measure was up 2 percent. But indices in Shanghai and the Taiwan benchmark lost more than 3 percent.
Japan’s market, where the Nikkei 225 tanked nearly 10 percent Friday to close out its worst week in history, was closed for a public holiday.
The region’s markets showed signs of life after leaders of the 15 euro-zone countries unveiled measures Sunday to prop up the region’s ailing financial institutions. Under the plan, governments would guarantee new bank debt until the end of 2009, allow governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalizion(sic).
Futures charts found at Bloomberg.com indicate the major players think the US will follow suit and have an up day on Wall Street.
Currently predicting gains of around 373 basis points, they are perhaps betting on market reaction to the expected announcement of government investment in US banks. General world consensus is that the agreements reached in Europe over the weekend which extend guarantees of private bank deposits and virtually all new bank debt through 2009 has bolstered trust in the system.
The lack of trust is thought to be the key issue in the global crisis. No one is sure who has funds and who doesn’t, so everybody simply holds onto what they have. With no funds moving, the financial markets have seized-up. Government guarantees are expected to alleviate some of that lack of trust.
If today’s pause is any indication, the plan seems to have worked. At least for today. But it still feels like the risk is on the downside and some wonder if Monday’s rally is just setting the world markets up for a sucker punch later in the week.
Right about now would be a good time to take a moment out of your crazy day and listen to 10cc from 1974… singing about the Wall Street Shuffle. I hope you enjoy it:
I am Jon, and I am wondering: Do you think the markets will continue to fall, or is that darkness behind us?