Correction or crash?

The Herald reports:

New Zealand are tipped to be hit today after global sharemarkets were slammed in what’s been described as a “bloodbath”.

Hundreds of billions of dollars were wiped from the value of around the world yesterday. Australia’s stock market fell 3.2 per cent after Wall Street’s 4.6 per cent fall — where gains for the year have been erased in what was the steepest tumble in nearly seven years.

In markets were also hammered with the Nikkei in Japan falling 4.73 per cent and Hong Kong’s Hang Seng index last night finishing down 5.11 per cent, pointing to another turbulent session on Wall Street. In early trading, Britain’s FTSE 100 dropped 2.05 per cent.

The global plunge — which will hit KiwiSaver balances — has been blamed on an overdue correction to booming sharemarkets over the past year, in particular, and the prospect of rising interest rates in the United States, which could slow economic growth by making it more expensive for people and businesses to borrow.

It’s probably is just a correction, but it could turn into a crash. Worth recalling the timing of global economic events.

  • 1973 – oil crisis
  • 1987 – sharemarket crash – 14 years later
  • 1998 – Asian crisis – 11 years later
  • 2008 – GFC – 10 years later

We’re now 10 years past the GFC. The chances of an adverse global economic event in the next three years is non-trivial.

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