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World markets plunge after European elections

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World stock markets have been pummeled in trading after election results in Greece and France heightened market concerns about Europe's ability to solve its debt crisis.

Stock markets in France, Germany, Japan, Hong Kong, South Korea and Australia all registered drops on Monday.

The Paris-based CAC-40 dropped in morning trade, but was almost even at 11:40 GMT, with Frankfurt's DAX down by 0.58 per cent.

Japan's Nikkei-225 index plunged by 2.78 per cent, Hong Kong's Hang Seng was down 2.61 per cent and Australia's S&P/ASX-200 was down 2.15 per cent.

Shares in Seoul's Kospi index fell by 1.64 per cent to close at a three-month low.

Signs of a faltering economic recovery in the US compounded the dour mood, while oil slid to nearly $97 a barrel.

In currencies, the euro bought $1.2981 in afternoon trade in Tokyo, down from $1.3082 on Friday in New York. It also fell against the Japanese currency, dropping to 103.55 yen from 104.50 yen on Friday.

Fears over budgets

Weekend election results in Greece and France have sent a tremor of financial uncertainty throughout Europe, as voters punish parties responsible for highly unpopular austerity measures.

In Greece's parliamentary election, no political party was able to win an outright majority, but far-right and left-leaning parties that have criticised the budget cuts performed strongly, heightening fears that the country may yet default on its massive debt and exit the euro.

In France, meanwhile, President Nicolas Sarkozy lost to Socialist challenger Francois Hollande, who has also criticised the country's austerity programme and wants to boost government spending in what he calls a "pro-growth" approach.

Francis Lun, managing director of Lyncean Holdings in Hong Kong, said markets were overreacting to fears Hollande would make good on a campaign pledge to renegotiate an agreement signed by Sarkozy to put the brakes on government overspending.

"Even though Hollande indicated he will repudiate Sarkozy's agreement with the European Union, in reality he cannot do it," Lun said.

"It is understood that a new government cannot repudiate or renegotiate a treaty signed by the previous government."

Hollande's promised wave of government spending increases could cause further downgrades of France's sovereign credit rating.

Japan's top government spokesman said Tokyo will "carefully monitor" how Europe reacts to the French election.

"The trajectory of the European economy greatly affects our economy," Osamu Fujimura, the chief cabinet secretary, told reporters, adding that Japan considered discussions between France and European powerhouse Germany "important".

Investors say that while Hollande's victory was expected, it is the Greek election results that have caused more concern.

"It's not the victory of Francois Hollande in France that worries us - we expected that - but the results of the Greek elections," said strategists from the bank Credit Mutuel-CIC in a note to investors.


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