Global stock sell-off wipes out $4 trillion from market capitalization

Facing a downturn in market conditions, investors are pouring into other assets, such as forex.

Stock markets across the globe, tread downwards for a fourth consecutive days wiping out $4 trillion from the market which had peaked just eight days ago.

European bourses started by as much as 3% down, leaving investors with little choice but to seek refuge in the Japanese yen, gold and strangely benchmark government bonds, which incidentally caused the initial triggers for the selloff.

The commodities market also saw metals and oil tumble; what could have been one of the best starts of the year soured very rapidly.

“Playtime is officially over, kids,” said analysts at Rabobank said. “Rising volatility painfully reminds some investors that one-way bets don’t exist.”

Although the stock selloff is being viewed, by some, as a healthy correction, with the selloff snowballing through Europe and Asia, nerves were starting to fray.

The S&P 500 benchmarks as well as Wall Street’s Dow Jones slumped by 4.1% and 4.6% respectively, marking their biggest fall since August 2011.

From a pure points basis, it was the Dow’s biggest ever fall.

“Since last autumn, investors had been betting on the ‘Goldilocks’ economy – solid economic expansion, improving corporate earnings and stable inflation. But the tide seems to have changed,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

Incidentally, the original trigger for the sell-off was a sharp rise in U.S. bond yields late last week with data showing a rise in U.S. wages at their fastest pace since 2009. This trigerred an alarm on higher inflation and potentially higher interest rates.

This scenario could be painful for markets which have been fed by central banks’ loose monetary stimulus, for so many years now.

So as to avoid further risks, investors are diverting their funds to other assets, including the currency market, where a popular strategy has been to sell the dollar against the euro and other currencies seen as benefiting from higher interest rates in the future.


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