Panic stations

22nd January 2008, Comments 0 comments

The European stock markets yesterday saw one of their biggest falls in history as a result of fears of a possible economic recession in the United States.

22 January 2008

MADRID - The European stock markets yesterday saw one of their biggest falls in history as a result of fears of a possible economic recession in the United States.

The Spanish blue-chip Ibex 35 shed 7.54 percent to close the session at 12,625.80 points, in line with losses in the European markets as a whole. A public holiday in the United States worsened the impact of the panic as it deprived Europe of a key reference point. Turnover in the continuous market was EUR 9.434 billion.

Since 12 December when the Ibex 35 tested the 16,000-point mark, the benchmark index has lost 21 percent of its value, a correction most analysts consider to be sufficient even if a recession were to take hold in Europe.

This time around, it is the United States that is the source of the problem, and the rest of the world that is suffering the consequences to the point that investors and fund managers have become the victims of their own fears.

The problem facing investors for the past few days has been one of a correction of valuations to reflect a pretty negative economic scenario. But with the plunge in stock prices, that scenario could turn out even worse than expected.

Nobody seemed capable of reminding themselves yesterday that the European economy is slower and more stable than the US and that the prospect of a recession this side of the Atlantic is more remote. For some observers, this is a consequence of globalisation.

One of the few positives to emerge from yesterday's session was that the dividend yields of Spanish banks are now above 5 percent. However, given the negative sentiment that took hold yesterday, there is also the possibility of a global recession obliging companies to cut payouts.
[Copyright EL PAÍS / RAFAEL VIDAL 2008]

Subject: Spanish news

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