labels: banks & institutions, markets - general
Sub-prime defaults alone not to blame for global volatility news
16 August 2007

Global volatility was triggered by the sub-prime mortgage problem, analysts said. CNBC-TV18 reports on the extent of the spread of the problem over the last one week.

Analysts said there are four major problems in the market today. The Dow closed below 13,000, while analysts were expecting it to close at about 14,000. Apart from that, the yen, which is a very important trigger, has broken the 116 mark and there are fears of the yen carry trade unwinding. In the recent weeks, it has seen levels of 117-118, but is now trading at 115.7.

Also, the CBOE VIX index has reached its highest levels in four years. Since the correction started, it has doubled from 15 to 30. Crude is also an important factor. It was going down to $70 but has again shot up to $73 per barrel. These are four main events that are putting pressure on global markets. This is further percolating down to Asia and other emerging markets, said analysts.

According to analysts, the rupee, which touched 41, should be a relief for the IT companies.

But this could not compensate for the four major triggers that we are seeing. The last two-days of sell off in the US and Asian markets were triggered by some news coming from Countrywide Financial, which is the largest US home loan mortgage company. (See: Countrywide Financial stock slide on rumours of bankruptcy) There were speculations that the company could go bankrupt and Merill Lynch downgraded the stock from buy to sell.

Reports that Australia's RAMS Home Loans failed to refinance its debt and the company's stock was down 50 per cent also added to the negative sentiment.

Yesterday, 15 August, was also considered as a deadline for submitting applications for hedge fund redemptions. There is no quantification available of how much money has been redeemed. But global hedge fund players said there were hedge fund redemptions and people were putting in their applications for withdrawal of money. Analysts said it is difficult to quantify a number, but it has also triggered a sell off.

Analysts said it will not be wise to talk about certain corrections seen in the global markets or stocks. Lehman Brothers, Goldman Sachs, Bear Stearns, Fannie Mae, Fortress Investment and Blackstone, were all dragging down by around 5 per cent yesterday.

There is still a lot of skepticism in the mind of investors regarding what cues they can get globally. According to analysts, everyone is playing for the intra-day, but the picture looks very murky.


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Sub-prime defaults alone not to blame for global volatility