The Shock Waves

Europe's steady economic surge in the past decade, in the face of three U.S. recessions, proves that the Continent's basic economic climate is no longer dominated by transatlantic winds. But last week, in the aftermath of Wall Street's Blue Monday, it became abundantly clear that, so far as stock prices are concerned, New York can still make the weather around the world.

Along with New York's, nearly all the world's stock markets have been sagging for months. In some cases, the causes were local: the London Exchange reflected the generally listless state of the British economy and the government's eleven-month-old drive to prevent wage rises while the Tokyo Exchange was unsettled by the momentarily parlous state of Japan's balance of payments. But in most of the world's financial centers, brokers attributed their troubles to the fact that investors, preoccupied with capital growth, had run stock prices up to levels far higher than dividend yields or per-share earnings warranted.

So, when word of Blue Monday circled the globe, it triggered the same kind of market collapse that occurred on Wall Street. Items:

>The frantic sell-off on the London Stock Exchange was even bigger (6.4%) than the famous one in 1938, just before Hitler delivered his ultimatum to Czechoslovakia (5.4%). From amidst the rubble, Stock Exchange Chairman Lord Ritchie advised small investors "to put their heads down and let the wind blow over them."

>The Geneva Exchange--which does not restrict floor trading to member brokers--was a churning mob scene as panicky investors rushed onto the floor to sell their stocks in person. On the Zurich Exchange, shares in the blue-chip Credit Suisse slid from $833 to $509.

>The free-wheeling Toronto Exchange suffered its sharpest price break in the 28-year history of its industrial index. Curiously, it was the industrials rather than Canada's multitudinous speculative mining stocks that were hardest hit.

>The Amsterdam Exchange maintained the appearance of stolid Dutch calm so well that in the midst of a sell-off that sent Philips Lamp plummeting from $205 to $185, a tourist wandered onto the floor under the impression that he was in a museum.

Saved by a Flash. Faithfully as they had imitated Blue Monday's plunge, foreign exchanges shot up on the news of Wall Street's Tuesday rally. On the Frankfurt Exchange, Volkswagen shares abruptly jumped from $125 to $145--higher than before the price break. In London, the Evening News headlined BOOM AFTER GLOOM and the Financial Times index showed its biggest morning surge since the 1959 Tory election win--though prices sagged again by week's end. Most dramatic of all was the recovery of the Sydney Stock Exchange: slow to receive news of Blue Monday, Australian investors were just beginning their big sell-off when a flash that Wall Street was rallying cut it short.

Along with Sydney, two other major foreign exchanges rode out the storm almost unaffected. In Tokyo, stock prices were already so low that Wall Street's gyrations produced only minor ripples. And in South Africa, rigid government currency controls have so cut off the local financial community from the rest of the world that the Rand Daily Mail index shrugged off Blue Monday with a drop of only one-tenth of a point. Mused one Joburg broker: "There might be something to isolation after all."

The Dream of Freedom. One result of the week's unnerving slide was an outburst of resentful complaints at Wall Street's ability to panic stockholders everywhere. Protested Belgium's leading financial paper, L'Echo de la Bourse: "Nothing in our industrial situation justified an adjustment of such importance." Zurich's Neue Zuercher Zeitung wished that Swiss stock markets "would show some sense of emancipation" from Wall Street. But with the international financial community becoming ever more intertwined, one man's aches are surely going to continue to be another's pains.

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