$2trilLion: Global equity meltdown

NEW YORK: The month-long slide in global stocks has wiped out at least $2 trillion in wealth, leaving investors few alternatives to preserve their holdings aside from bonds and money markets.

Investors have been dumping stocks, commodities and emerging market assets on growing concerns that economic growth will suffer from higher inflation and interest rates.

“It is essentially one consistent story worldwide, starting in the US. There is a fear that the Fed’s repeated commitment to limiting inflation demonstrates a willingness to risk economic activity,” said Christopher Low, chief economist at FTN Financial in New York.

Stock markets have been punished since the US Federal Reserve raised interest rates for 16th time in a row on May 10 and issued a hawkish statement saying it may need to do so again to fight inflation. Investors had expected some sign of an end to the tightening cycle.

Global markets have suffered since, and strategists show little agreement about how deep and how long the sell-off will go. Bonds have been the most direct beneficiary of the equities route, with benchmark US 10-year Treasuries staging their longest rally of the year since mid-May.

The Dow Jones industrial average is off 8.2% since mid-May and as of Tuesday’s close had erased its gain for the year. The Nasdaq is off 12.75% from its high for the year on April 19 and the Standard & Poor’s 500 Index has fallen by nearly 8% from its May peaks.

On Tuesday, Tokyo’s Nikkei average booked its biggest one-day percentage fall in two years, tumbling 4.1%, wiping out more than 16.56 trillion yen ($145bn) in market value from the Tokyo Stock Exchange’s first section. It was the biggest one-day point drop since 9/11.

In Europe, the FTSEurofirst 300 index of top European shares has fallen about 11% since May 11. The index finished at 1,238.5 points on Tuesday, its lowest closing level since November 30.

Since its year high hit in early May, the MSCI World Index of global stocks has lost $1.9 trillion in market capitalisation, nearly 12% of its value and more than the economic output of the UK.

The index compiled by MSCI Barra does not account for all global stocks, meaning the total amount of lost wealth is greater still.