Nasdaq crash contagion

Reshma Krishnan

NOVEMBER was meant to clear up questions over the state of the US economy, and who the next US President would be.

But this was not to be and the US presidential election imbroglio continues. This circus, unfortunately, hit America where it hurts hardest: The stock market. While this did not directly contribute to the technology-stock-driven Nasdaq's fall, it did compound many of the investors' fears last month. Nasdaq fell 22.9 per cent to close November at 2,597.93 from October's close of 3,369.63. This was the lowest in the year and its worst month since 1987. It was down 40 per cent from the all-time high of 5,123 in March 2000. The first major fall came in May when it slid to 3,042.

Investors became jittery, with October earnings less than impressive. November also brought news that all the seven Federal Reserve rate hikes had had the desired effect and the US economy had cooled down. But is it cooling down too fast? Investors are now worried that this cooling might slowdown high-growth areas such as information technology. This will definitely hurt Nasdaq.

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The situation was not very different elsewhere in the world. Nikkei was one of the major casualties. This indeed had a volatile month, going up and falling. It sank to 14,301, its lowest since February 1999. From the high of 20,833 this March, this Tokyo, 225-company index, fell steadily and wiped out all the gains it made in 2000. Nevertheless it is one of the month's gainers, posting a positive return of 0.7 per cent to close November at 14,648 from the October low of 14,539. The Tokyo market even ignored its own economic figures last month.

Other casualties included several major European markets. The German DAX posted a negative return of 10 per cent to close November at 6,372 from October's close of 7,077.04. The Paris CAC-40 also posted a negative return of 7.3 per cent and ended November at 5,928.08 from October's close of 6,397.66.

Surprisingly, some Asian markets came out on top. The Manila Composite was November's best performer, closing at 1,404.03 up 9.1 per cent from October's close of 1,287.85. This rally was despite the political turmoil in the Philippines, with the pressure increasing on the President, Mr Joseph Estrada, to resign.

Indian indices posted positive returns after a long time. The Bombay Sensitive Index posted a 7.7 per cent return, closing November at 3,997.89 from the October close of 3,711,02. This performance goes against the usual talk of the Indian market's fortunes being linked to Nasdaq's fortunes. One of the main reasons could be the positive FII inflows of Rs 1,000 crore last month after a negative October. There has also been some value-buying of Old Economy and FMCG stocks such as Hindustan Lever. And there is a feeling that the technology stocks are at their right valuation.

In December, the festive season, the markets have traditionally been flat. Unfortunately, it might be different this year because of the US election stalemate. Hopefully, December will answer those questions November failed to. On a more positive note, the US Federal Reserve Chairman, Mr Alan Greenspan, subtly indicated that there would be no more rate hikes, and even suggested the possibility of a rate cut. Will that spark a sustainable turnaround?