Short-selling ban boosts markets
US and European shares make gains after ban on short-selling of financial stocks in France, Italy, Spain and Belgium.
| Wall Street ended one of its most volatile weeks in years with first back-to-back gains in more than month [Al Jazeera] |
The world’s stock markets have completed one of their most volatile weeks in history, with US and European stock exchanges closing on a high note after a short-selling ban on financial shares was announced in four eurozone countries.
The Dow Jones industrial average increased 1.13 per cent by closing on Friday, while the technology-heavy NASDAQ Composite Index rose 0.61 per cent.
Both had experienced deep losses by the close of US markets on Wednesday, but saw significant gains by closing on Thursday.
Wild swings over recent days highlight how volatile trading is at the moment amid concerns over the global economy and the levels of debt in the US and Europe.
London’s FTSE 100 increased 3.05 per cent and France’s CAC-40 was up 4.02 per cent. Germany’s DAX closed with a 3.45 per cent rise.
The gains in Europe came after regulators in France, Italy, Spain and Belgium imposed temporary bans on short-selling of financial shares late on Thursday, after sharp selloffs and temporary gains in French bank shares in particular that they said were fuelled by false rumours.
‘Downward pressure’
The share prices of French banks, which fluctuated sharply in recent days, appeared to stabilise on Friday.
Analysts question, however, whether the short-selling banks would be successful in the long run, since many experts claim that a similar move in 2008 actually contributed to investor uncertainty.
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Market analyst Aly-Khan Satchu explains what short-selling is and why it can cause problems |
Charlie Parker, an investment editor for City Wire, told Al Jazeera: “There’s a great deal of disagreement about whether a short-selling ban would even work.”
“There’s a lot of reasons to believe that a ban like this couldn’t work,” he said. “That’s the problem. In 2008, there wasn’t a great deal of evidence that it restored much calm to banking shares when they were gyrating wildly. In fact, there’s been a lot of academic research done by that time. The IMF has done some research since that time. It’s all found that it’s not particularly effective.”
France, Italy, Spain and Belgium experienced a bit of calm after imposing the ban late on Thursday. However, Parker pointed out that other markets did as well.
The halt in the French economy is set to exacerbate concerns over the eurozone in general, where the three bailed out countries of Greece, Ireland and Portugal are in recession and Italy and Spain struggle with lacklustre growth.
France is already facing speculation that it may soon lose its AAA-rating due to its high debt load.
“With the economy stagnating and elections coming up next spring, it will be extremely difficult to implement the aggressive austerity measures that are needed to convince markets that the government finances are on a stable footing,” said Jennifer McKeown, senior European economist at Capital Economics.
Meanwhile, US consumer confidence plunged to its lowest level in more than three decades in early August, according to data published on Friday by Reuters and the University of Michigan.
Their index of consumer sentiment fell to 54.9, its lowest since May 1980, when it sank to 51.7. In June, consumer confidence registered at 71.5.
Ian Shepherdson of High Frequency Economics explained: “Most of the hit was in the expectations index, which is most sensitive to stocks.”
“This is grim, obviously, but remember that GDP is a measure of spending, not sentiment… If the index were to remain at this level, history would tell us to look for slower spending, but one month is not a trend.”
Asia evens out
Earlier in Asia, the session was far less volatile than of late. Hong Kong’s Hang Seng added 0.13 per cent and Australia’s S&P/ASX 200 gained 0.82 per cent, while benchmarks in New Zealand and Singapore also rose.
But Japan’s Nikkei 225 stock average closed down 0.29 per cent after spending the morning in positive territory. A stronger yen, which reduces the value of profits earned overseas, pummelled export shares.
Mainland Chinese shares, however, traded higher for a fourth day. The Shanghai Composite Index gained 0.45 per cent while the Shenzhen Composite Index gained 1 per cent.
In the oil markets, prices fell as traders booked some profits garnered over the previous session, when crude rose 3.4 per cent. Benchmark oil for September delivery was down 55 cents at $85.17 a barrel.