International financial markets are in for another nervous Friday today, after a market upheaval throughout south-east Asia knocked on to European and US markets yesterday. Together with renewed fears of higher US interest rates, this led to a volatile day on the US market, with the Dow Jones index finally closing 92.9 points lower at just over 7694, a drop of 1.2 per cent.
Signs of deep disarray in Malaysia's financial policy jolted confidence throughout south-east Asia yesterday and helped drive some Asian currencies to new lows.
One source of the unease was the snap decision by the Kuala Lumpur Stock Exchange in effect to ban the short-selling of shares. The move drew almost universal criticism from financial markets and aroused fears that Malaysia might be abandoning its free-market policies.
Worries about a possible rise in US interest rates, following the publication yesterday of an upward revision to second quarter economic growth, sent the Dow Jones Industrial average down more than 125 points in early trading.
It later rallied and then turned weaker again towards the close of trading. This depressed European stocks. In London, the FTSE 100 index shed 61.5 to 4,845.4, while in Germany the DAX was off 94.6 to 3,897.43. The Dublin market gained ground, moving against the trend.
Economists said they hoped Malaysia would set out clear policies to address what had now become a crisis of confidence in its economy. Instead, Mr Mahathir Mohamad, Malaysia's prime minister, railed again at "huge" foreign funds for allegedly shifting their focus from attacking currencies to manipulating the local equity market.
Nervousness spilled over into the foreign exchange market, sending the Malaysian ringgit to a new low. The disarray in Malaysia contributed to a deterioration of confidence throughout the region. The Philippine peso recovered from opening lows after central bank intervention. The Manila share index lost 9.28 per cent, its biggest drop in a decade, following the release of disappointing growth figures.
Hong Kong's stock market has remained relatively insulated from the region's problems, but yesterday it fell 4.23 per cent and is now back to levels last seen before the July 1st hand-over of the territory to China.
