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Global Markets Are Dragged Down By Fear

RENEE MONTAGNE, host:

From unrest in London to turmoil in the global financial markets, Justin Urquhart Stewart has been watching developments today. He's director and co-founder of Seven Investment Management in London. And welcome to the program.

Mr. JUSTIN URQUHART STEWART (Seven Investment Management): Good morning. Thank you.

MONTAGNE: Now, markets in Asia fell dramatically, earlier today - regained some losses, but ended up closing lower. What are the key factors behind that original huge sell-off in Asia?

Mr. STEWART: Well, it was actually a really, continuation of what had been happening. And what's so strange about these events is there is nothing new which the market didn't already know. To use those old phrases of the known unknowns, well, these are all known knowns. We knew that the American debt crisis was there and there was very likely to be downgrading of the rating. We knew that the eurozone has a crisis in terms of managing the euro. And we know the global economy is growing at a lower, slower level. But really, what you've had is a lack of confidence, reflecting, I think, a lack of political leadership to actually come out with some credible decisions to get us out of this.

MONTAGNE: And trading in Europe seems to be a mixed bag today. What's happening there?

Mr. STEWART: Still a very mixed bag. We were up into the positive territory for awhile, then slipping back again. Underlying this, what you've got is, of course, valuations of companies, now looking at, really, at very low levels and not really at the - really, reflecting the value of those businesses -a lot of whom, of course, are actually in a quite good position in terms of their debt; have been perfectly profitable. Their outlooks are lower and slower, to reflect the global economy, but actually looking at pretty good strength. So I wouldn't be at all surprised, actually, we do start finding a level quite soon. But you're not going to start seeing any significant recovery, other than a quick bounce back on short term basis, until the politicians can start coming up with credible alternatives.

MONTAGNE: Well, when you speak of, though, about Asia, you were talking about a lack of confidence. Does that apply, as well, though, to Europe and why it's, you know, the market's falling even though there's some pretty good companies out there?

Mr. STEWART: Well yes, what you've got in the eurozone, of course, is, unlike America where you can have a decision made on a Monday and action taken on a Friday; in the eurozone you'll have a decision made on a Monday, action will be taken on a Friday, they just won't tell you which month the Friday will be in -particularly during the holiday periods. And what you've had is the leaders of the eurozone having a telephone conversation, rather than, say, actually necessarily face-to-face, to try and address what needs to be adjusted. Because in the eurozone, you've got 17 different tax policies, 17 finance ministers, 17 egos, and one central bank.

Compare that with the United States, where you have federal tax system and 50 different states, but obviously a central bank. So it doesn't work in its current form in the eurozone, it needs changes, particularly to try and actually make sure the euro itself is seen to be robust. Which is rather perverse, because the eurozone, as a sort of super state, the economy is still doing OK. And if you look upon it as a single state, rather than 17, there isn't actually a debt problem. But because they are operating in a very disjointed manner, therefore they are allowing, effectively, each nation's debt position to be picked off.

MONTAGNE: Well, just briefly - we have about 35 seconds here - we are waiting here, in the U.S., to hear from the Federal Reserve, today, that, you know, make a decision to - today, sort of, entity - the Fed is issuing its monetary policy statement. How could that impact global markets?

Mr. STEWART: Very significantly, by actually - if it gives, seems to be credible, in terms of actually adding a level of stability, the world's largest economy, the United States, creates that level of confidence, it ripples out from there. It ripples to China, it ripples to Europe, and has that stabilizing effect. So we are watching that very closely, indeed. If that operates successfully, then you'll find a base to this. If it doesn't, the nervousness continues.

MONTAGNE: Justin Urquhart Stewart is director and co-founder of Seven Investment Management in London. Thank you very much for joining us.

Mr. STEWART: My pleasure. Transcript provided by NPR, Copyright NPR.