The collapse and rescue of US investment bank Bear Stearns sparked panic throughout world financial markets last week as analysts predicted the resulting issues will continue spreading to global markets.
JPMorgan coming to the rescue of Bear Stearns caused jitters in markets across the globe, with key speculators revealing that countries such as Australia were certain to feel the impact as the effects of US turmoil spread throughout the world.
Howard Archer, chief UK economist at analysts Global Insight, said the lack of liquidity around the world meant all markets would be affected. He said: “This is going to cause a fairly global impact. There is a lot of truth in the idea that when the US sneezes, the rest of the world catches a cold. This news has hit global confidence and has destabilised the dollar, which in turn has had a knock-on effect.” Archer described the Bear Stearns news as “a fairly seismic event” that was certain to affect other markets. He added: “It is not only Bear Stearns. We know Lehman Brothers has problems too. People around the world are looking to see who is next.”
Nitin Arora, analyst at equity research firm Clear Capital, said although the sub-prime problem was specific to the US, it was clear its effects were being felt throughout the world. But he added that some countries would escape dire consequences. He said: “Countries such as India, China and Russia are more resilient to what is going on now.” Arora said that because these markets were less developed, they had not been as involved in the “exotic investments” that had crippled some institutions. “In these areas, the financial health is now better than the developed economies,” he concluded.
Simon Maughan, analyst at MF Global Securities, said each market had its issues but said this was not only a sub-prime mortgage problem. He continued: “Many banks around the world have adopted a business model that is now failing. This will cause global problems as the extent of the damage is being revealed. Australia is an example where interest rates are rising, and as a consequence, people will be squeezed.”
