The U.S. markets were closed today, but everywhere else in the world it was nothing short of Black Monday–and that’s no exaggeration.
Markets in Europe, Asia, Canada, and everywhere in between sold off hard as fears of a U.S. led recession began to sweep the globe.
Declines of 5%+ in all of the major averages were the norm, as investors showed little faith in the idea that their markets had become "decoupled" from the world’s largest economy.
In fact, it was the worst worldwide performance for the markets since 9/11.
It was, in short, a massive vote of no confidence for the Bush stimulus plan that was revealed on Friday.
"This is a stock-market crisis," said Alberto Roldan, head of research at Inverseguros SVB in Madrid. "Investors believe that neither a government package nor a huge rate cut is going to help evade a recession in the U.S."
But for all of the talk of a recession today, an old friend named subprime also played a big role in the day’s market action as the mortgage debacle finally washed ashore in China.
That’s because as it turns out, the Chinese aren’t exactly as decoupled from the mortgage mess as the hoped they were.
China, of course, was a big buyer of bad mortgage paper.
It’s a pretty familiar story and it’s not good.
From AP by Joe Mcdonald entitled: Chinese Bank Shares Fall Sharply
"Shares in China’s banks fell sharply Monday after news reports said its No. 2 lender, Bank of China, might write down holdings of U.S. mortgage securities and two others increased reserves for possible losses.
The reports were the first indication that Chinese lenders, which have so far avoided damage from the U.S. credit crisis, might face problems due to their holdings of sub prime securities.
Also Monday, China’s banking regulator warned that lenders might face risks from fluctuations in fast-rising real estate prices.
Bank of China is expected to announce a "significant writedown" on its $7.95 billion in U.S. subprime mortgage securities, Hong Kong’s South China Morning Post newspaper reported, citing unidentified sources.
Bank of China spokesman Wang Jianping declined to comment. He said the bank would release details of its assets in late March when it announces annual earnings.
Bank of China shares fell 4.1 percent in Shanghai market and by 6.4 percent in Hong Kong. China’s biggest banks are listed in both cities, with shares in Shanghai off-limits to most foreign investors, while Hong Kong is open to global traders.
The fall in bank stocks helped to drive overall market declines in both cities, with Shanghai’s main index sinking 5.1 percent and Hong Kong plunging 5.5 percent — its biggest percentage drop since 2001.
"The subprime woes in the U.S. have raised concerns at home about risks in the domestic mortgage market and prompted selling in banking and real estate companies," said Wang Junqing, an analyst at Guosen Securities in Shanghai
Bank of China, China’s biggest owner of subprime mortgage securities, said in October they were 3.05 percent of its total holdings. The bank said it had set aside $473 million for potential writedowns."
As for U.S. markets, today’s big sell off abroad promises wash ashore here tomorrow.
Dow Futures by the way fell by over 500 points on the day.
Tomorrow’s trade could be an all timer.
