Slipping on oil slick

Reshma Krishnan

``All good things must come to an end'' goes the saying, and that is exactly what happened to the markets, the world over.

In August, the bourses managed to recoup the losses of the previous month. In September, however, the indices lost the momentum and broke the rising trend of August. All but one, the Index of Bolsa de Madrid, the Spanish index, posted negative returns. To blame were crude oil prices and Intel, the world's No. 1 computer chipmaker.

The US hi-tech stock market -- the Nasdaq -- did not have a good September. In fact, it lost the gains made in August and fell back to close at the level around which it opened the month. It was also the worst performing index of the month. It closed September at 3,672.82 and posted a negative return of 21.7 per cent. This fall of about 500 points was predominantly because of the oil crisis.

The stock market failed to internalise the oil prices hike till they hit $36 a barrel. This caused a riot in the markets. To top it all, the US had its lowest stock of oil in 10 years. With winter looming ahead, the market weakened under pressure, falling 2.01 per cent and 78.6 points in one day. The pressure on the market finally eased for a while when the US President, Mr Bill Clinton, ordered 30 million barrels to be released from its strategic petroleum reserve.

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This created a domino effect on the Asian market. The South Korean index, Kospi, for instance, fell 11.68 per cent to close at 554.82 in one day. There was more to Kospi's fall than just crude oil price hike. The fall was also caused by rumours that trading might be suspended in the Korean exchange following a failure of the bailout package for the one of the country's key chaebols, Daewoo. The Kospi index posted a negative return of 11.3 per cent.

Another major event was a profit-warning issued by Intel Corporation. The markets were already weighed down by the expected disappointment in corporate results. Intel's warning just reinforced this and fell 25 per cent and dragged the world's market down with it. In just one day, the Nasdaq fell 113.68 points to close at 3,715. There are two reasons for Intel impacting the US market. One, it is one of the 30 companies in the Dow Jones Industrial Average and also heavily weighted in the Nasdaq Composite index. Two, it drags other major computer related companies with it.

Apart from dragging companies down, the Intel warning also brought the Nikkei down 492 points to close at 15,818.25. The Nikkei's fate was similar to Nasdaq's this month, as it also lost much of the gains it made in August. It traded within the high of 16,739 and a low of 15,600 and lost almost 1,000 points in September.

The Hang Seng was also badly hit by the Intel warning. It lost 551.51 points the day the warning was issued and fell to 14,612.318. It performed relatively well compared to the other Asian indices and rallied successively for four months between June and end-August. September erased most of these gains, with the index touching a low of 14,612.88 not seen in four months, because of Intel's profit warning. It closed September at 15,648.

Despite a bad month for the bourses, two indices managed to touch all-time highs this month: The CAC-40, which touched 6,944.83, and the Toronto Stock Exchange Index (11,388.52).

However, one thing that has not changed since August is the uncertainty surrounding the markets. With Denmark refusing to join the Euro and the currency feeling extremely vulnerable, the European markets' direction is uncertain.