The cruellest month?

Reshma Krishnan

WORLD STOCK markets sent out confusing signals, buffetted by fluctuating oil prices. Other worrisome issues for the investors were: Would the Fed raise interest rates again? Would the euro recover at all? Will the much-hyped technology sector deliver?

Most Asian markets, with the exception of the Malaysian bourse, slumped. Many hit new lows in October. They moved in tandem with the American market, and became casualties of disappointing corporate earnings and the weakening euro. There was also the fear of the Federal Reserve raising interest rates for the seventh time in a row.

The Nikkei (of Japan) moved in tandem with the weak Nasdaq for most of the month. Closing at 14,539, it posted a negative return of 7.7 per cent. The Tokyo index fell to a 19-month low of 14,465 -- well below the psychological level of 15,000. The downgrades in the US chip sector and the PC major, IBM, posting a disappointing third quarter earnings prompted this reaction. There were a few other similar lows fuelled by lower-than-expected results from Toshiba Corp and NEC Corp. This led to heavy selling in the market.

Apart from IBM, there were other problems too. Japan's 12th largest insurer, Chiyoda Mutual Life Insurance, filed for bankruptcy, another in the long list of bankruptcies in Japan's financial sector over the last year.

A 5.5 per cent fall in China Mobile caused the Hang Seng to plummet. The index outlines the problems of a concentrated index as its performance depends on three companies that account for 60 per cent of the index's market capitalisation -- China Mobile Telecommunications, Hutchison Whampoa and HSBC Holdings. It would be fair to say that future prospects for the index heavily weigh on those of Chinese mobile telecommunications. If this sector falls out of favour, the index will suffer. The Hang Seng ended October on a low of 14,895, losing 4.8 per cent during the month.

Another Asian index to post a new low was the Manila composite index which closed October at 64 and became the second biggest loser of the month, posting a negative return of 10.2 per cent.

South Korea set the same record, its Kospi 200 index losing over 15.66 per cent in October closing at 134. In fact, it saw its lowest closing since February 1999. This was mainly because of the selling by local institutions triggered by the rumours of liquidity problems faced by Hyundai Engineering and Construction.

It was not very different in the West. On fears of rising oil prices, tension in West Asia and disappointing third quarter results, the Nasdaq Composite was one of the month's poor performers posting a negative return of 8.3 per cent, closing October at 3369.63 from the previous month's close of 3672.82.

World's No 2 PC-maker, Dell Computer Systems, posted disappointing results. This was followed by lower-than-expected results from Lucent Technologies, Motorola and Yahoo, which led to panic selling and a 94-point loss on one day. Chip companies, especially the US chip-maker, Micron Technology, were downgraded by brokerages indicating the slowdown in the sector. All this pulled down the market.

The Dow Jones performed rather differently, and was one of the few indices to post positive returns in October. It closed at 10,971.14, posting a return of 3 per cent. And surprisingly, despite a weak euro, European indices were some of the better performers of October. The German Dax, the Paris CAC-40, the Footsie-100 and the Italian Mibtel, all posted positive gains proving the euro's fall did less damage than was expected.

November brings uncertainty for the markets. The latest survey shows the American economy is cooling off. The US presidential election might shift the balance. No one is sure if oil prices will fall or if West Asia tensions will fuel the rise. At least with the earnings season out of the way, the volatility could be less in November.