Stocks dropped sharply overseas Monday, preceding a similar plunge of U.S. stocks, in reaction to the U.S. credit rating downgrade by Standard & Poor’s.
In Europe, the S&P move to drop the U.S. government’s rating to double-A-plus from triple-A outweighed the bullish news of European Central Bank purchases of Spanish and Italian government bonds. Doubts about the strength of global economic recovery also weigh on the markets.
European stocks hit levels 20 percent below their Feb. 17 high, with shares of mining, auto, and technology companies leading the move down.
In mid-afternoon London trading, the Stoxx Europe 600 Index traded around 235, down 1.6 percent for the day. The index hit a 15-month low.
“Macro is clearly dominating at the moment. It’s going to feel like we are dipping in and out of a recession for the immediate future,” David Hussey, head of European equities at Manulife Asset Management, tells Bloomberg.
In Asia, the MSCI Asia Pacific Index plunged 2.5 percent to about 123, its lowest level since Sept. 10, 2010. The market already plummeted more than 10 percent from its May peak last week.
“Sentiment will take a hit from the U.S. downgrade, and equities markets in particular are the preferred venue for the expression of panic,” Prasad Patkar, a fund manager at Sydney-based Platypus Asset Management, tells Bloomberg.
“It’ll take another globally-coordinated effort by central banks and regulators to allay concerns about the knock-on impacts, which means a prolonged period of uncertainty.”
China’s Shanghai Composite Index plunged 3.8 percent Monday, falling into bear market territory with a drop of 20 percent from its Nov. 8 high.
Australian stocks also have lost 20 percent from their April 20 high. The country’s S&P/ASX 200 Index fell 2.9 percent Monday, sliding below 4,000.
Volatility indices in Hong Kong and South Korea have almost doubled in the last week.
To be sure, not everyone sees S&P’s downgrade as a catastrophe.
Billionaire investor Wilbur Ross, CEO of WL Ross & Co., tells CNBC that the downgrade was simply based on the fact “that democracy is a messy process.”
He actually sees some cause for optimism in the fact that Congress “came out in the direction that has some promise of some fiscal stability going forward."
And Hans Olsen, head of Americas investment strategy at Barclays Wealth, told Bloomberg in an intethat investors shouldn't "join the crowd and try to pile out" in the wake of the S&P downgrade.
“American companies have earnings power because they have depth and reach of where their products are sold and they have margins because they’ve been absolutely laser-like in their focus on margins,” Olsen said to Bloomberg. “Those revenues translate into earnings, and the price that you pay for those revenues and earnings is on the lower end of what it’s been over 10 years.”
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