Why the record-breaking falls
- 27 Oct 08, 10:57 AM
Today's fall in stock markets across the world puts us on track to set new records for monthly declines in share prices.
So far this month, share prices in the US and Europe have fallen on average by more than a quarter, those in Asia by a bit more.
Unless there's a sudden bounce, the cumulative monthly falls in October for most major markets will be as big as has been by anyone alive.
In the case of the US, the monthly drop is likely to be the biggest for 70 years. For other markets, where serious measurement of stock-market movements is a younger pursuit, the drops are as bad as any seen since records began some 40 years go.
Why the rout?
Well three things are going on.
First, we're seeing the end of the carry trade, the investment of cheap, low-interest loans raised in yen and dollars for investment in higher yielding financial markets, such as those of the emerging economies, Iceland and - to an extent - the UK.
Investors are liquidating assets everywhere from South Korea, to Argentina, to Hungary, and holding the proceeds in the Japanese and US currencies.
curre qui peut.THESE ARE THE COLLACATIONS
declines in share prices
emerging economies
holding the proceeds in the Japanese and US currencies
higher yielding financial markets
the investment of cheap
for investment in higher yielding
Investors are liquidating assets
major markets
holding the proceeds
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