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Tuesday, August 11, 1998 Published at 15:57 GMT 16:57 UK

Business: The Economy

Are the bears awake?

Bears are giving shareholders a mauling

Share prices are crashing around the world as panic spreads throughout the financial system.

Stockmarket bears, those pessimistic market watchers who predict a sustained fall in share prices, are awaking from a long hibernation.

And shareholders are getting mauled.

Stocks can go down as well as up

After more than three years of booming prices, investors have been reminded of one of the basic health warnings always attached to stocks: share prices can go down as well as up.

In fact they are dropping like a stone.

[ image:  ]
The New York Dow Jones Industrials index has fallen more than 10% from its peak in mid July and the Nasdaq index of hi-tech stocks and Russell 2000 index of smaller stocks have also fallen sharply from all time highs.

The FTSE 100 index of blue chip shares has fallen more than 12% since its peak in mid-July and other European bourses have followed.

Asian turmoil

So why have the bears begun to rattle their cages?

The root of the problem is the turmoil that has afflicted Asia's financial markets.

Japan, which until not long ago was the economic envy of the Western world, has plunged into recession, its economy buckling under a mountain of bad debts.

A slowdown in the South East Asian economy after years of growth has had severe repercussions for the world's financial markets.

Shares crash worldwide

Asian share prices and currencies have crashed, sending shockwaves reverberating around the world's financial system.

[ image:  ]
Exports to the region from countries such as the US and the UK have dried up as demand has evaporated.

And because of that there are growing fears that the Asian financial crisis will blow a big hole in US and European company earnings.

In short we could be heading for a worldwide economic slowdown from which nobody is immune.

Taming the bulls

That has been enough to halt the bull run on Wall Street, where shares have soared over the last few years, in its tracks.

In market-speak, "bulls" are investors and traders who believe that share prices prices will rise.

{ Audio 1 Some analysts point to the fact that the latest bull run was partly fueled by private investors pouring their savings into the stock market, mainly through mutual funds which have largely replaced US company pension schemes.

With prices seemingly on a never ending upward spiral, more and more people thought that shares would guarantee the best return on their money, and as a result even more funds poured into the market.

Falling down to earth

Share prices were pushed to sky high levels. But the rise in stock values outpaced rises in earnings, leading some analysts to predict that a fall was inevitable.

[ image: New York shares have collapsed in recent months]
New York shares have collapsed in recent months
The markets are now standing below a huge wall of money, which is in danger of collapsing if and when investors suffer a crisis of confidence.

And stockmarkets are as jittery as at any time since the last stockmarket crash in 1987.

Nervous times

Witness the 300 point fall of the Dow following a decision by Ralph Acampora, an analyst with Prudential Securities, to pronounce that the market could be heading for a further fall.

True, he is a respected investment guru and previously one of Wall Street's most notorious bulls, who has consistently predicted a sharp rise of share prices.

But such a steep fall based on the opinion of one analyst shows how nervous and volatile the markets have become.

Catching the flu

The old stockmarket adage goes that when Wall Street sneezes, European markets catch a cold.

But New York shares have come down with a bad bout of Asian flu, and European shares have followed them into the sickward.

At first it appeared that the stockmarket was heading for a temporary correction after a period of wild exuberance.

But now it seems that there is no end to the stockmarket crisis in sight.

As bad news continues to come out of Asia, each new trading session in New York and London heralds a fresh drop in share prices.

Investors now face a unenviable choice. To hang onto shares, hoping that things will get better, or to sell up now before they get much worse.

Click here to discover what the experts say about the prospect of a bear market.

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