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Stock Markets Plunge as Investors Seek Clarity from Regulators

Discussion in 'Shares' started by Tropo, 21st May, 2010.

  1. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    "U.S. equity markets are trading sharply lower at the mid-session as large investors have been dumping positions due to the lack of clarity from financial market regulators in Europe and the U.S.

    The lack of clarity regarding proposed regulatory legislation and the surprise curbing of short sales by Germany is making investors nervous.
    Throughout the entire Greek debt crisis, investors have been looking for clarity and conviction from the European Union.
    Each time the EU has made a proposal, they have failed to explain to investors the logic behind the move.

    This week’s move by Germany to forbid the shorting of bank stocks is a good example of what is triggering the fear in the market today.
    Institutions are confused by the action in Germany because the regulators have basically changed the rules of the game.

    Institutions are worried that the proposed changes in U.S. regulations are going to make it more difficult to protect risky positions in equity markets. What this means is large investors are unsure how they are going to hedge their exposure in the markets and instead have chosen to pare back positions to reduce the possibility of large losses.
    Without knowing what the regulators are going to allow them to do, it doesn’t make sense to take on added risk so liquidation seems to be the only viable option.

    In addition to confusion over regulatory issues, investors are blowing out of risky commodity-linked currencies because they feel the Euro Zone debt problems are going to derail the global economic recovery.
    This means the real possibility of a global double-dip recession.

    Hedge funds and large investors continue to divest out of the commodity-linked Australian and New Zealand Dollars.
    Traders feel that the spread of Euro Zone debt woes will curtail the global recovery and lead to a drop in demand for raw materials."