Record lows of varying degrees are being set almost daily around the world as investors continue to react to bad economic news and the threat of world-wide recession but take little heed to the billions being poured into economies everywhere and the likelihood of further central bank interest rate cuts.
The Dow Jones closed at a more-than-five-year low after Monday trading, while the Nikkei had slumped to a 26-year low. The New Zealand market is down about 35% in value, compared to its high in May last year.
The NZX SE 50 index closed down 3.4% yesterday and "fared badly", which may have been influenced by not trading on Labour Day and playing catch-up with earlier, badly affected bourses, ABN Amro Craigs broker Peter McIntyre said.
Turnover was light at $66.7 million, with Top 10 companies Fletcher Building and Sky City down more than 4% and Contact Energy down 2.5%.
The SE 50 index has not been this low since July 2004.
Before closing, the Asian rout had eased with two of the major bourses up, but the Singapore Straits Times was well down at 7.16% and the Nikkei was down 0.9%. In Australia the All Ords and S&P 200 were both down at about 1.4% before recovering to close 0.34% and 0.38% down, respectively.
Mr McIntyre said much of the present selling, following on from extended panic selling in the US and Europe, was from over-extended hedge funds, which for every dollar held are estimated to have borrowed a further $30-$35.
There is subsequently a run of "forced selling" in progress, in commodities and equities held by the hedge funds, as margin calls and loans were made, he said.
"The hedge fund redemptions are prompted by calls to either pay the banks back, or sell out [their commodities or shares]," Mr McIntyre said.
The US market showed a delayed reaction to news that the US Treasury was preparing to inject about $US125 billion ($NZ227 billion) this week into into nine major banks as part of a massive rescue plan, and also the debut of the Federal Reserve's commercial paper programme aimed at unfreezing short-term credit for corporate funding.
Mr McIntyre said that compared to the cycles of previous bear markets the present situation should have reached its low point, or "fundamental fair value" of the markets. However, he noted the extent of borrowing during earlier bear markets had not been as high.
He expected a further 5%-10% decline in NZX value.
ABN chief investment officer Cameron Watson said "unwinding the debt bubble" was going to take longer than forecast and unlike the 1998 Asian crisis, it would not be a "short, shallow economic downturn".
"In our view the recovery in 2010 may not eventuate until 2011, or at best, not until the second half 2010," he said in a statement yesterday.
The key question at present was whether the 35% decline in NZX value was the full extent of the present malaise, or whether there was more weakness to come.
The market was wrong to expect a repeat of the tough times in the early 1990s, when the share market lost 48% in value. He noted the later Asian crisis in 1998 was less severe.
New Zealand's underlying economy was "relatively sound", corporate debt levels are "generally prudent', large companies flexible and competitive and the Government can boost the economy with tax cuts and infrastructure investments and the Reserve Bank has room to cut interest rates.
"We remain optimistic that this downturn won't be as savage as the 1991 experience," Mr Watson said.
