Shinichi Kishima
Tokyo - The shock attack on US power centres has provided an unwelcome insight into how thoroughly globalised - and vulnerable - the world financial system has become.
Stock, bond and currency markets have yet to regain much composure after being virtually paralysed by the kamikaze-style assault that destroyed New York's World Trade Centre - itself a powerful symbol of globalised financial power.
Benchmark stock price indices in Europe lost more than 5% almost immediately after the US attacks on Tuesday, and Japan's Nikkei average fell more than 6% the next day, breaking the crucial 10 000 mark for the first time in 17 years.
Smaller regional markets have all suffered similar blows, while the New York Stock Exchange and the technology-driven Nasdaq market remain closed.
Currency markets were brought to a near standstill and everything from emerging market debt to the rubber market in Tokyo felt an almost immediate chill.
To some extent, investors have become accustomed to the downside of globalisation in recent years. Market gyrations during the 1997 Asian financial crisis began as a liquidity squeeze in Thailand but spread like wildfire and shook world economies.
But the latest incident has fuelled more concern as the attacks were made on the nerve centre of the global financial system at a time when even the mighty US economy is teetering on the verge of recession.
"Various parts of the global economy are so interlinked these days that a problem in one corner can get translated very quickly into the total economy just through the impact on financial flows," said Bruce Freeland, chief economist at the Commonwealth Bank of Australia in Sydney.
"That said, something happening in the US - because it really does drive the direction of most global markets - can have a bigger impact."
The buildings were home to the some of the world's top investment houses. The devastation around the site has forced nearby Wall Street to stay shut, causing enormous anxiety around the world as markets struggle to find some direction.
Markets have now appeared to stabilise somewhat, but analysts said that was less due to a return of confidence than because traders were waiting for markets in the world's biggest ecoomy to reopen.
"It's too early to let out a sigh of relief. All things considered, the US economy is not likely to come out of this incident unscathed," said Takashi Yamazaki, chief investment officer at Tokio Marine Asset Management.
Decentralisation
Growth in cross-border capital flows, the adoption of money similar investment strategies by money managers and the advent of high-speed information technology were behind the greater market synchronisation, analysts say.
Modern risk management theories also encourage decentralisation in many ways and analysts say that could help the financial services industry get back up to speed in no time.
"A lot of infrastructure and financial market capacity have been lost in the US. But generally speaking, the supply side can be repaired fairly quickly. People are very innovative in finding ways to produce, finding ways to set up shops," said Matthew Poggi, economist at Lehman Brothers Japan.
Concerns of a disruption to the US Treasury market due to damage suffered by interdealer broker Cantor Fitzgerald, which controls the lion's share of the market and occupied top floors of the World Trade Centre, were eased by the firm's backup services.
"It is clear that we have incurred a heavy loss of life among our colleagues and friends," Cantor chairman Howard Lutnick said in a statement.
"At the same time... we remain confident that our systems and technology will perform as our customers have come to expect. Our concurrent computing centres in New Jersey and London are unimpaired."
Poggi at Lehman said the main problem was likely to be the damage done to the demand side - consumers and individual investors.
Consumers in the United States and elsewhere are well aware of the impact of Wall Street turmoil on their personal wealth, and their resilient spending had been virtually the sole bright spot in a slowing economy.
"This (attack) happened at a very crucial time when the US was flirting with recession to begin with," Poggi said. "Now the risk is that sentiment could fall very sharply. From the demand side, that would be the area of concern."
===== Kevin Dean Buffalo, NY ICQ: 8616001 http://www.yaysoft.com
__________________________________________________ Terrorist Attacks on U.S. - How can you help? Donate cash, emergency relief information http://dailynews.yahoo.com/fc/US/Emergency_Information/