Weekly international investment round up to 7 October 2008
The cool breeze blowing across the Atlantic turned into an icy cold wind on ‘Meltdown Monday’ for European stocks as a new wave of banking difficulties swept the markets this week.
Europe’s largest economy shivered the most as its second largest property lender, Hypo Real Estate, needed salvaging by a €50 billion euro bail-out by the German government although some analysts have stated that even this, the biggest of it’s kind since the second World War, may not actually be enough to save it.
Earlier, France’s largest bank BNP Paribas saved Fortis Bank in Luxemburg and Belgium from drowning while the world’s largest lender to local government authorities, European based Dexia, also needed the kiss of life.
As the their currency hit a 14 month low against the US Dollar at the start of this week, Finance ministers form the Euro-zone huddled together to discuss the financial crisis and how this could be collectively tackled somewhat resembling the crew of the Titanic discussing the dangers of icebergs having only just hit one! It would appear that not only has this crisis exposed the cracks within the European financial markets but also the lack of any real cohesion among the European leadership.
Last week, I pessimistically wrote about how the multi-billion dollar US rescue plan which had taken two attempts to be passed was likely to be immediately seen as ‘ineffectual’ and alas, this has proven largely to be the case as Asia also followed Europe’s downward path.
‘Meltdown Monday’ saw Germany’s Dax slide 7.39 per cent, France’s CAC 40 drop 9.04 per cent and London’s FTSE 100 record its biggest one day fall since 1987, collapsing 7.85 per cent. In America, the Dow Jones fell below 10,000 for the first time since 2004 while Russia’s RTS index was suspended after falling over 19%. In reality, although the US rescue plan has now been passed it will still take some time to be implemented and for any positive effects to be felt.
The financial tsunami which has hit Europe has not only changed its financial landscape but could also change its physical shape as well. Iceland, which for many years has staunchly refused to join the EU is now dramatically having to rethink its position. Once fishing was its main industry but banking has quickly taken over and has left it badly exposed to the worldwide credit crunch. Inflation has shot up to 14 per cent while its currency, the Krona, lost 20 per cent of its value against the US Dollar and 30 per cent against the Euro in just one week.
With their banks’ exposure much larger than their country’s actual GDP the island and its population of just over 300,000 is facing bankruptcy. Legislation giving the Icelandic government and its regulators sweeping powers which include the complete control over their finance sector has now been hurriedly passed in an attempt to avoid catastrophe and in return for their co-operation Iceland’s unions are pressing the government to join the EU but with Europe also facing a winter of discontent the whole region desperately requires inspired and united leadership in order to avoid the big freeze.
Mark Lamb is Director of FPC Investment Consultants who are Independent Financial Advisers and regulated by the MFSA to provide investment services under the investment services act 1994. For further details please contact Mark Lamb, by email on [email protected] by phone on 21318008 or through FPC’s website www.fpcmalta.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek independent financial advice before making any investment decision.
