World News

Terrorist Attack: Effects on Worldwide Financial Markets

Written by Joshua Smith - 16th September, 2001

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Traditionally, the world's financial markets have taken a bumpy ride in the wake of dramatic incidents of horror, terrorism or acts of war. This week has been no exception, with the initial shock selling seen as a reflection of the unbelievable fact that the world's last great superpower was the surprise victim of such a large-scale coordinated act of war.

In the day immediately following the attacks on America, the world's major financial markets were devastated, with the already-punished NIKKEI falling some 6% shortly after opening on Wednesday. The UK's FTSE 100 fell 5.7%, Hong Kong's market slid a massive 9% and Paris witnessed a selloff that resulted in a 7.4% loss for the day.

Fortunately, the Australian market was relatively well buffered from a fall as significant as those noted above. The All Ords fell about 4% after opening, and maintained that range for most of Wednesday's trading. Those taking the brunt of the fall were travel and financial-related stocks, as well as those companies that have significant American exposure. Murdoch's Newscorp, for example, slid more than 10% throughout the day.

Westfield's slide was moderate, though, given that the company had recently invested $800 million in a 99-year lease of their space in New York's World Trade Center. Qantas, too, was protected somewhat from the falls that hit overseas airlines hard due to the cross-over between this incident and the sudden closure of Ansett, which has left Qantas with a massive majority of the market share on domestic air travel in Australia.

Most affected nations recovered a great deal of their losses in Thursday and Friday's trading periods, but all major indices remain down for the week as the world comes to grips with both this incident and the impending retaliatory effort, which is likely to be a long, sustained and expensive campaign that directly or indirectly involves almost every developed nation in some capacity.

The sentiment of shock and market withdrawal would most certainly have decimated the US-based markets if they were to open this week, but the distance of time and the growing resolve of the American spirits of patriotism and unity have improved estimates for the market's reaction when the US stock exchanges open for trading on Monday.

All exchanges in the US are to carry out a testing period today in which, in a similar move to that occurring in the lead-up to Y2K, a full day's trading will be simulated to test the communication links between all involved parties.

Of course, this incident could not have come at a worse time for the American markets, which have been teetering on the brink of recession for several months. There has been some suggestion that the fed will continue its policy of easing interest rates, or that the Central Banks will step in to enact a global easing of monetary policy in which interest rates would be reduced the world over in order to stem any possible slide into depressive conditions.