Sensex sheds over 430 points on global meltdown
05 Feb 2010
The benchmark Sensex shed over 430 points at close following bearish trend across the globe on credit defaults in the Eurozone countries. The Nifty broke the psychological 4700 mark during the day but managed to claw back above that level.
European jitters again sent the markets towards bearish trend since yesterday. Cost of insuring against losses on sovereign debt rose to a record high on Thursday. According to European Commission forecasts, Portugal's public debt will rise to 91% of GDP by 2011, up from 77% & Greece's debt will increase to 135% of GDP, from 113%, and Spain's will increase to 74% from 54%.
Investors were not pleased with Trichet's comment, Portugal cut down its debt issue. Credit default swaps (CDS) increased sharply. ECB President Trichet said that many members in the Euro Zone will have large, sharply rising fiscal imbalances.
Greece, Portugal, Spain~Sovereign CDS gain sharply on Thursday. Dariusz Kowalczyk, Chief Investment Strategist at CFC Seymour said, "These countries are not large, at least Greece and Portugal. But Spain is a bigger economy and there are concerns over its debt as well. But the big picture, the problem here is that the growth in 2010 continues to be supported by fiscal stimulus and now it seems that government may be unable to fund this stimulus, these markets became more discriminate regarding debt levels and fiscal position of the public finance sector. That is why Asian markets are falling simply because there is a risk of double dip recession right now in developed economies of the world, if they are unable to continue funding fiscal spending. And since our region is so dependent on exports for its growth, people have to be worried and hence we had sharp sell-off across Asia today."
David Fernandez, Head of Emerging Asia Economic and Sovereign Research, JP Morgan said, "Sovereign risks may not be isolated to just one or two countries."
European markets were trading 1.1-2.3% lower while US index futures were flat because they sold-off quite well yesterday, at the time of closing of Indian equities.
