Revision to the Mean

The global stock market has gone into a free-fall. Some notable statistics:

• The Nikkei has fallen 35% over the last 6 months
• The Sensex had a one-day plunge of 12% today
• Temask's 2bn pounds investment in Barclays is halved, if marked to yesterday's market price
  
• 150 bn pounds was wiped out from the FTSE100 yesterday

This bloodletting in the equity markets was a delayed reaction from the wipeout in the credit markets a couple of months back. Some correlation or contagion effects I suppose. A couple of myths were dispelled here:

• The decouping theory - Asia is still very much linked with the American economy, or rather investors, when in panic mode, will sell down whatever holdings, regardless of geographical fundamentals
• Equities are at a historical low PE - I guess when growth slows, forward PE does not look too pretty

The current bloodletting is further acerbated by the short positions taken up by the hedge funds. I guess the smarter traders are making a killing out of this global rout. There is more to go but do watch for the bounce.