The major stocks of US fell sharply on Friday, The Dow, S&P 500, and Nasdaq tumbled 2.4% on average. The Dow Jones industrial average down more than 280 points after some bad news emerged from the market regarding the credit crunch and the rise of US unemployment rate in July.
The fears of investors regarding the crisis of subprime mortgages going worse after American Home Mortgage (AHM 0.69 -0.75) said it was shuttering operations by laying off most of its 7,000 staffers. To make matter worse, Countrywide Financial (CFC 25.00 -1.77) showed that credit default swap spreads widened by nearly 100 basis points.
In fact, there is now too much uncertainty with regard to the credit markets and how the situation will ultimately settle. Mean while, what we can be sure is the fact in which financial institutions will continue to tighten their lending procedures. As a result, people and companies can’t borrow money as easily. Such situations will definitely affect and slow down the activities of economy.
About the Asian stocks, most of the Asian stocks suffered from this transaction week by stumbling about 2-3% of their market value. There is no denying that most of the investors are now getting worries on the US subprime mortgage crisis after the fallout of the sell-down on regional markets recently. They are now more likely to adopt a wait-and-see strategy.
Asian stocks would probably continue struggling and tumbling when the markets start their transactions on next week. This is due to the bad news emerged from US market on Friday and the negative sentiments in which surrounding the markets. In Malaysia, there will be another tough challenge for the KLCI (closed at 1335.42 on Friday) to maintain above 1300 points level after failing to advance to 1400 points by the end of July.
However, there are some market’s analysts trust that – Malaysia is a safe haven in the subprime storm. They supported their statement by the stronger growth in the domestic economy would likely be achieved with government’s policies to push up the local economy. Yep! Malaysia is a safe haven; but the condition is that US subprime mortgage crisis won’t get worse in the future. Otherwise, there is no safe haven in Malaysia even in the world’s markets.
As shown in the chart above, US is one of the largest export markets for Malaysia. It comprised about 18.8% of the total exports for Malaysia in year 2006. If US subprime mortgage crisis getting worse in the future, there must be a bad impact to the export of Malaysia. As a result, the domestic economy would be slowed down and the unemployment rate may rise too.
