The New Zealand sharemarket slid 2.5% yesterday after United States markets slumped more than 4% to 12-year lows on the back of giant insurer American International Group (AIG) posting a massive quarterly loss of $US61.7 billion ($NZ126.87 billion) - the largest quarterly loss in US corporate history.
A US government $US30 billion bail-out offer for AIG failed to instil investor confidence, due to concerns the rash of multibillion bail-outs designed to stabilise the flailing financial sector will dilute share values and lead to nationalisation.
In Europe and Australia yesterday, markets slumped on news Europe's largest bank registered a 70% drop in after-tax profit.
Few shares on the New Zealand market escaped the global slide and, at 11am, NZ Farming Systems Uruguay was down 10%, Tourism Holdings 9%, Infratil 7.5% and Guinness Peat Group 5.5%.
The market was down 2% overall, with some stocks edging toward five and six-year lows.
By the close yesterday, several companies were hitting five-year lows, including Nuplex down 11.8%, Rakon 8.7%, Michael Hill 7.5%, AMP and Tower, respectively 7.7% and 6.5%.
The New Zealand dollar weakened slightly to trade at $A78.05c and $US49.49c during most of the day.
In Australia, the ASX S&P 200 index hit a more than eight-year low yesterday, falling 2% to 3183.6 points.
The drop in stock values was a reaction to the AIG situation and also news Europe's biggest bank, the Hong Kong and Shanghai Banking Corporation (HSBC), announced a 70% drop in after-tax profit and an intention to raise $NZ36 billion through a new share issue.
Of Scottish origin, HSBC has almost 7000 branches worldwide and also announced it was slashing 6100 American jobs.
The Reserve Bank of Australia, which has already cut its interest-driving official cash rate by 1% to 3.25%, surprisingly did not cut its rates further yesterday.
ABN Amro Craigs broker Peter McIntyre said the most recent expectations were for a 0.5% cut to counter the recession. But the central bank signalled the earlier cuts were already having an effect, given that 80% of mortgage holders were on floating loans.
The Reserve Bank of New Zealand next reviewed its official cash rate, standing at 3.5%, on March 12, and analysts were expecting a 0.5% to 0.7% cut, Mr McIntyre said.
In the US, the Dow Jones Industrial Average loss of more than 4% became its first close below 7000 points in 12 years, while the Standard & Poor's 500 index was at its lowest level in 13 years. The tech-heavy Nasdaq Composite declined 3.99 %.
Mr McIntyre said forecasting the day-to-day events had become very difficult because of the market volatility and changing fortunes of companies.
"The markets continue to be driven events on a day-to-day basis. Forecasting can't be done with any confidence. What's forecast today can change in the 24-hours," Mr McIntyre said.
In Australia, bank shares were hardest hit, with Westpac, NAB and AMP all down 1.5% and CBA down 3%, but surprisingly insurer QBE was up 3.5%.
Forsyth Barr broker Peter Young said of AIG: "This is a truly staggering deficit for a three-month period and really does highlight how difficult it is at the moment".
He said the source of AIG's trouble, which has 74 million customers worldwide and operations in more than 130 countries, was its business of insuring mortgage-backed securities and other debt against default.
"That business imploded once the credit crisis struck with force," he said.
The biggest decline on the Dow Jones index was Citigroup, which fell 30c, or 20%, to $US1.20, as investors feared the latest dilutive government rescue would not be the last, Mr Young said.
Mr McIntyre said the lack of offshore investor confidence was underpinned by the large government stakes being taken in ailing US and European companies, which could lead to company nationalisation.
"The Australian banking sector and now the insurance sectors will be coming under increasing scrutiny," Mr McIntyre said.
Global gold and oil prices acted predictably to the market slumps, with oil taking a 10% hit on prices as investors saw a decline in demand as the world heads into recession. West Texas oil had steadied to trade around $US40 a barrel.
Mr McIntyre said spot gold prices edged up almost 2% to $US952 as investors sought its historical safe-haven status. Gold hit a record $US1033 in mid-March last year.
