Investors in Europe's leading companies lost more than €240 billion yesterday as global stock markets crashed amid fears that the world is plunging into a recession.
The value of companies listed on the Dublin Stock Exchange plummeted by 4.17 per cent, roughly €3.6 billion, as panic spread through Europe from Asia, where the fear-driven sell off began on Monday morning.
Reports estimated that losses on blue chip indices of Europe's biggest public companies amounted to $350 billion (€242 billion). It was the biggest one-day fall on European stock markets since the terrorist attack on New York's World Trade Center in September 2001.
Yesterday, dealers in Dublin pointed to over four million shares being sold in Allied Irish Bank and almost six million in Bank or Ireland as evidence that investors were dumping equities.
"It's a complete meltdown, everybody just wants cash," one trader told The Irish Times.
In Frankfurt, one of Europe's main financial hubs, a dealer said there was complete panic on Germany's stock exchange.
"It's a classic crash," he added.
The Morgan Stanley Capital International (MSCI) index, which tracks the value of all stocks on developed world markets, plunged 3.3 per cent, finally wiping out gains made by equities over the last year.
Since the beginning of the month, its value has fallen by 12 per cent.
Irish workers will be directly affected by a drop in the value of their pensions, most of which include share investments pegged to national and international indices such as the Iseq index of Irish shares and the MSCI.
The FTSE Eurofirst index, which benchmarks Europe's top investments, dropped 5.8 per cent, taking its year-to-date losses to 15 per cent. In London, the FTSE index shed 5.6 per cent.
Fears that the US is about to slip into recession and take the rest of the world with it sparked yesterday's crash. The problems faced by the US stem from the fact that a large number of its banks fuelled a credit bubble by giving mortgages to individuals with bad credit histories, who would normally be judged high risk, prompting the so-called sub-prime lending crisis.
The value of the homes against which the loans were given began to fall last year and many of them defaulted. US banks now fear that the problem is spreading through the system to other forms of credit.
Last week, US president George W Bush proposed a $140 billion package to stop the slide into recession but stock market analysts said yesterday that investors do not believe it is enough.
Economist, Jim Power of Friends First, predicted that the US and European central banks would have to begin cutting interest rates "aggressively" this year. This would ease mortgage and other borrowing costs.
"The Fed (US central bank) could cut rates by as much as 1 per cent," he said. "The European Central Bank is going to have no choice but to cut rates as well."
Mr Power warned that the Republic is facing into a tough year.
"International investors fell out of love with the Irish economy a year ago, if you superimpose the negative global outlook and stock market turmoil on that, it will further undermine confidence," he said.
"We are facing a very challenging year at least," he said. "But we have got to remember that the world economy will emerge from this in 12 to 24 months and we have to prepare for that by restoring some of our damaged competitiveness.
"We need to continue to address our infrastructure deficit, the Government cannot let up on the National Development Plan, we have to control current spending, and there has to be wage restraint, in the private and public sectors."
