Stocks plunged worldwide yesterday and gold hit a new high as fears of a global slump sent investors scrambling for safe assets.
The blue-chip Euro Stoxx 50 index was down 5.4 per cent to about 2205 points. The UK's FTSE 100 index lost 4.5 per cent at 5092.23, while German's DAX 30 index slumped 5.8 per cent to 5602.8. US stocks were down by more than 4 per cent in early trading.
The declines came as investors rushed to sell stocks and buy gold and government bonds perceived as safer. Gold hit a record of US$1,826 an ounce.
Fears are rising that countries may lurch back into recession only three years after the financial crisis struck following European leaders' failure to solve the continent's sovereign debt crisis and downward revisions to Chinese growth projections. If recession returns, analysts say governments will have few tools to resuscitate their ailing economies, having used up most of their bandages after the crisis of 2008.
"The world today is pricing in potentially no more conventional tools available to stimulate the economy, not a eurobond or increasing the size of a fund in Europe, not having quantitative easing or another form of stimulus package, coupled with a prolonged two years of low interest rates," said Haissam Arabi, the chief executive at Gulfmena Investments in Dubai.
UK 10-year government bond yields hit record lows yesterday as investors bought up the debt. The yield on 10-year US treasuries declined for a third day. Yields move inversely to prices.
Investors are also buying Gulf government debt as a safe haven. Abu Dhabi 10-year government bonds maturing in 2019 were yielding 3.165 per cent yesterday, the lowest since their sale two years ago. Qatar 10-year bonds were also yielding at 3.1 per cent, a two-year low.
Economists, meanwhile, are revising projections for global growth downward.
Deutsche Bank and Morgan Stanley cut their forecast for Chinese economic growth yesterday, while Morgan Stanley also lowered its outlook for global growth to 3.9 per cent from 4.2 per centbecause of "insufficient policy response to Europe's sovereign debt crisis, weakened confidence and the prospect of fiscal tightening".
Asian markets also fell, with India's shares down 2.2 per cent, the lowest in almost 15 months. Japan's Nikkei Index was down 1.2 per cent and Hong Kong's Hang Seng Index was down 1.3 per cent. Korea's KOSPI Index was down 1.7 per cent.
In the US, the Standard & Poor's 500 index fell by more than 4 per cent as US investors took stock of the drastic falls across Asian and European markets.
The yen appreciated against 14 of its 16 major peers, while the dollar index rose the most in two weeks.
Brent crude slipped below $110 a barrel, while crude futures in New York dropped 2.8 per cent to $85.07.
Gold rose to records in New York and London.
Recent shakiness in global markets has wiped trillions of dollars off investors' portfolios worldwide. Yesterday's losses alone erased €230bn (Dh1.2 trillion) from European markets.
Stock markets had already taken huge falls on Monday and Wednesday last week before staging a rebound that proved temporary.
afitch@thenational.ae
