Officials from 43 Asian and European nations gathered in Beijing Friday to discuss how to combat the global financial crisis. But even as the talks got underway, the markets were having their say, and it wasn't pretty. From Tokyo to Mumbai, markets plummeted again, a trend that was repeated when European markets opened a few hours later.
"It is very clear just how little investors [in Asia] had factored in a very steep global slowdown," says Kirby Daley, senior strategist at financial services firm Newedge Group in Hong Kong, where the Hang Seng index fell 4.6%.
In Tokyo, where the Nikkei was down 7% to its lowest level in more than five years, electronics giant Sony slashed its 2008 profit forecast by half. In South Korea, where officials said GDP growth is at a two-year low, Samsung reported a 44% earnings drop. That helped drag down the Kospi index by 9%, bringing the total loss for the week to 17%, the South Korea market's worst showing since 1997. "It seems that in the last two weeks, it has dawned on investors in Asia that no one is immune from the slowdown that is to come," says Daley.
That realization is dawning around the world. Frankfurt's DAX opened 5.3% down Friday, while Paris's CAC 40 was 4.8% lower at the opening bell. In London, where officials are expected today to confirm that the UK economy has entered recession for the first time in 16 years, the FSTE 100 opened 5% lower.
Marc Touati, an economist and executive manager of Paris research and strategy group Global Equities, says that the "markets are pushing things in the search of a bottom — a point of impact from which rebound and recovery begins." "In one sense, it can be considered a catharsis," agrees Daley. "I just hope the panic doesn't cause irreparable damage to some firms and countries."
Global leaders share that concern, which is why finding a solution to the crisis is dominating the Asia-Europe Meeting in Beijing, and why international leaders will meet again in Washington on Nov. 15 to discuss how to reform the world's financial system. "We are living in unprecedented times and we need unprecedented levels of global coordination," European Commission President José Manuel Barroso said in Beijing on Thursday. "It's very simple. We swim together or we sink together."
But synchronizing swimming styles is easier said than done. Despite being the global cheerleader for a united response to the crisis, French President Nicolas Sarkozy on Friday announced that France would be creating its own national sovereign fund to buy stocks in troubled private companies. On Tuesday, Germany had rejected Sarkozy's call to create a European-wide sovereign fund that could prevent Europeans waking up "to find European companies belong to non-European capital, bought when share prices were at their lowest point". Sarkozy also wants governments in countries that use the euro to have greater powers to manage it against other currencies, and to significantly extend the term lengths of the rotating E.U. presidency — which France just happens to hold at the moment. Both suggestions met opposition from other European countries.
Slowing the downturn may have just got a bit more complicated, as well. The Organization of Petroleum Exporting Countries (OPEC) announced Friday that it is cutting output by 1.5 million barrels a day in an attempt to halt the slide in oil prices. The price of oil has dropped from $147 a barrel in July, to just $64 Friday. Lower oil prices have been one of the few positive changes in the financial and economic tempest.
Currencies have been moving just as wildly. The U.S. dollar continued its surge against the euro by pushing below $1.27 against the European currency Friday — a dramatic rebound from its record low of $1.60 in April. As investors sell out of stocks in other parts of the world they are rushing back into dollar assets, a traditional safe haven. That would ordinarily be good news for Asian and European exporters, whose products have suddenly become more competitive. But with American consumers cutting back spending, there may not be anyone to sell to.
—With reporting by Michael Schuman / Hong Kong