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Currency Trade Surges Amid Financial Crisis

Frightened investors worldwide have fled equity markets in the developing world for the currency safe havens of the Yen and the Dollar. The Hang Seng Index, which tracks stock trading in Hong Kong, is illustrative of the current situation around the world: recent up-ticks have posted record gains, only to be followed by a continuation of selling.

Statistical analysis shows that these brief gains are occurring where markets have moved downward extremely quickly, but not a single market has successfully established a new equilibrium price in the past two months. Until prices converge on a new average, we can expect an extension of the current losses.

The unprecedented fluctuations of several percentage points in value have plagued all the major stock exchanges lately, but relative to markets around the world, U.S. equities have held their value fairly well. Although the Dow Jones index is down 35% on the year, the S&P 39%, and the NASDAQ 42%, the European FTSE and Dow Jones Stocks are down 41% and 47% respectively and the Japanese Nikkei has lost more than 50%.

Developing world markets have fared much worse by comparison, having universally lost more than half their value in the past year. Despite the financial crisis having originated in America, the Dollar has fared strongly against most foreign currencies.