As bad as the year has been for U.S. equities, the scene around the world has been even more harrowing.
Morgan Stanley Capital International's index of 21 non-U.S. markets is down 49% through Dec. 1, 2008, compared with a 43% slide in the S&P 500. But the real devastation has occurred in once-hot emerging markets.
China's CSI index of 300 publicly traded stocks has fallen 63% for the year. The MICEX index of 30 of Russia's most liquid stocks is down a staggering 73%.
A year ago many economists and analysts earnestly posited that the global economy had "decoupled": Fast-growing European and so-called BRIC countries - Brazil, Russia, India, and China could thrive regardless of what was taking place in U.S. and Western European markets.
Turns out it really is a small world after all. These rising economies are now suffering as mature countries' demand for their wares weakens.Complicating the picture for global investors is the potential volatility of the U.S. dollar. Despite the weakness in the American economy and financial system.
The dollar has strengthened in recent months as international investors have sought a safe haven for their money. Today's dollar buys about 0.79 euro, compared with 0.68 euro a year ago.India’s rupee rose to the strongest level in more than five weeks after the Federal Reserve cut its benchmark interest rate to a record low, boosting demand for higher-yielding assets.
The currency gained for a third day as Asian stocks gained, stoking optimism falling interest rates in the world’s largest economy will damp risk aversion among investors. Average daily purchases of Indian shares this month by overseas investors exceeded sales for the first time since April, data from the nation’s capital markets regulator showed.
“The rupee may extend its advance on the Fed’s near-zero rate policy, targeting 46.90 over the next few sessions,” said Sean Callow, a currency strategist with Westpac Banking Corp. in Sydney. “The rupee may benefit more from the equity bounce than some of its regional peers.” The rupee strengthened 0.5 percent to 47.665 per dollar at the 5 p.m. close in Mumbai, according to data compiled by Bloomberg. Nine of the 10 most-traded Asian currencies outside Japan gained today.
India’s rupee has rebounded more than 6 percent from a record low of 50.615 touched on Dec. 2. The currency’s 17 percent loss this year is still the biggest since 1991, when a balance of payments crisis forced the South Asian nation to pawn its gold with the International Monetary Fund to pay for imports.
Cutting Rates -The Fed said yesterday it will target a federal funds rate of between zero and 0.25 percent. The median forecast among 85 economists surveyed by Bloomberg News was for a reduction to 0.5 percent from 1 percent. The Reserve Bank of India’s benchmark lending rate is currently 6.5 percent.
The MSCI Asia Pacific Index of regional shares climbed 2.7 percent after the Standard & Poor’s 500 Index added 5.1 percent yesterday. India’s benchmark share index, the Bombay Stock Exchange’s Sensitive Index, has gained almost 7 percent this month, after three months of losses.
Funds based abroad bought Indian shares worth an average $44 million a day more than they sold this month, compared with net daily sales of $46 million and $186 million respectively in November and October, according to data released by the Securities and Exchange Board of India.
Offshore non-deliverable forward contracts showed traders scaled back bets for how far the currency will decline in a month. The contracts indicate the rupee will trade at 47.72 a dollar in a month, compared with expectations for a depreciation to 51.26 at the end of November.
Forwards are agreements in which assets are bought and sold at current prices for future delivery. Indian rupee forwards traded overseas are non-deliverable, meaning they are settled in dollars rather than the local currency.