Ups And Downs in the Global Village

By EDWARD W. DESMOND

No event has ever dramatized the interdependence of world financial markets quite like the October crash. Last week stock exchanges around the globe continued alternately to plummet and jump upward in violent imitation of the spasms on the New York Big Board. In some cases, the volatility was much worse. In Tokyo, for example, the Nikkei share index dived 4% on Monday, but in a week of wild slides and surges finally closed with a gain of .1%. In London the Financial Times index tumbled 6% on the opening day of trading but struggled back and ended the week with a loss of 2%. The continued decline cast a pall over the Conservative government's latest sell-off of state-owned enterprises. Mexico's market, though small by comparison, fell drastically, as investors watched fearfully for signs of a recession in the U.S., the biggest purchaser of Mexico's vital exports.

None of the misfortunes, however, touched off a political crisis like that in Washington. For one thing, government leaders quickly pointed to the U.S. stock crash as the main cause of their own market woes. For another, the foreign debacles had nowhere near the potential of Wall Street to cause a major impact on local economies. With the monumental exception of Tokyo, now the world's largest stock market (with a value of almost $2.5 trillion, vs. the New York Stock Exchange's $2 trillion), most foreign markets are small * compared with those in the U.S. Before the October slump, shares on the London Stock Exchange were worth $824 billion, those in Paris $200 billion.

The political effects of the foreign roller coasters were also limited, in part by the relatively small number of shareholders involved in most countries. In the U.S. some 29 million households, or 1 in 4 adults, own stock. In Britain some 9 million adults, or 1 in 5, own shares, but that is still a relatively new phenomenon. In wealthy West Germany, by contrast, only 1 in 20 citizens is a private stockholder, while in Mexico the total number of shareholders is only 250,000.

What concerned most foreign leaders was the possibility that the Wall Street crash would lead to a U.S. recession and then to a world economic downturn. Nervousness about that prospect led to a certain amount of pointed anti-U.S. feeling. "The problems we are facing are the result of policies from the beginning of the Reagan Administration," said an angry West German central banker. "American policy is mainly determined by domestic considerations, even if it affects the world economy. Such thinking is no longer appropriate." A survey of the top financial centers:

JAPAN

Tokyo traders called it the week of haran, or turbulence. On Monday the value of the 225-stock Nikkei share index exchange fell 1,096 points, the third biggest loss ever. But after the slide, the Nikkei climbed by 731.15 points on Friday, its third biggest rise ever, and an additional 563.87 points on Saturday. Controlling the effects of the second-week crash posed a substantial challenge for the lame-duck government of Prime Minister Yasuhiro Nakasone, who hands over power on Nov. 6 to his successor, Noboru Takeshita. Following Monday's precipitous slump, the Japanese Finance Ministry quietly pressured major trust funds and insurance companies to begin a stock-buying blitz. Most complied, says Economist Kinji Yajima, because "management knows well enough that to ignore such requests is to ask for lots of trouble."

Though Tokyo's stock market has long been among the most overheated in the world, featuring share prices as high as 64 times the value of earnings, Japanese investors were more wary than worried. "When a mountain is high," said Masao Maehara, a Nikko Securities official, "its ravines must be deep. We're seeing fluctuations, but the Japanese economy remains strong." Even so, future Prime Minister Takeshita faces the unhappy prospect of slower economic growth than the 3.4% previously anticipated for next year.

HONG KONG

Nowhere did the chaos of Black Monday strike harder than in the tiny Asian entrepot. When the Hang Seng index dived 11% within hours on that day, the Hong Kong Stock Exchange simply vaporized, and Exchange Chairman Ronald Li closed it down for four days. When trading reopened last Monday, the value of shares plummeted an additional 33%, to about $50 billion, wiping out a year's gains. "This is not a stock market," said a furious Hong Kong local moneyman. "This is a poorly run casino."

British officials, who still rule the crown colony, cobbled together loans worth $512 million to support the financial center's imperiled stock-futures market. The Communist government in Beijing, which takes control of Hong Kong in 1997, was quick to pitch in $42.7 million for the loan package and was reported to be buying equities to help shore up stock prices. Colonial authorities are reviewing exchange rules, yet there are fears that the colony's reputation as a freewheeling but reliable financial center may be permanently damaged.

BRITAIN

Just one year ago, the London Stock Exchange celebrated Big Bang, the introduction of computerized and deregulated stock trading. The anniversary last week was a Big Bath. Chancellor of the Exchequer Nigel Lawson complained that he did not know why London "should be following Wall Street quite so slavishly." Samuel Brittan, widely respected economic commentator for the Financial Times, ventured a prediction that the stock slump would clip half a point off Britain's 3.0% projected growth rate next year. Prime Minister Margaret Thatcher called for a healthy dose of budgetary realism in Washington, and Chancellor Lawson reminded tight-fisted central bankers in Bonn that it was a credit crunch that turned the 1929 Crash into the painful 1930s Depression. Said he, referring to West Germany's reluctance to stoke its economy: "It would certainly be helpful if the German monetary authorities were to show more awareness of this."

WEST GERMANY

Citizens were mainly smug two weeks ago, when shares on the Frankfurt Stock Exchange, a closely held capitalists' club, slipped 16.3% in value. Chancellor Helmut Kohl's conservative government proudly pointed to the country's $47.71 billion trade surplus and less than 1% inflation rate, and stubbornly continued to turn aside calls from Washington to loosen credit and pump up the domestic economy. &

But last week Bonn got a shock as the dollar lost 1.5% of its value against the mark in a single day. That occurrence touched off Frankfurt's Black Wednesday, an additional 5.6% fall in the value of exchange stocks. The worst- hit shares were those of such high-priced luxury exporters as Daimler-Benz, down 10%, and BMW, down 7.9%. Suddenly, a number of West Germans began discussing changes in economic policy. An editorial in Munich's influential daily, Suddeutsche Zeitung, noted, "everyone must see that the danger of world recession is greater than the one of German inflation."

FRANCE

Share prices in the closely held Paris Bourse were off 20% on average two weeks ago, and an additional 3% last week. The slump did little good for Premier Jacques Chirac's chances in presidential elections next May. Also placed in jeopardy was a $1.28 billion equity offering that forms a crucial part of financing for the Anglo-French Eurotunnel, the planned car and railway passage under the English Channel. President Francois Mitterrand, whose socialist views are at substantial variance with Chirac's conservative thinking, nonetheless vented frustration at the U.S., saying it had "attracted all the speculative money in the world, and acted so that our companies can be blown away by the slightest gust of wind." French Finance Minister Edouard Balladur called for a meeting of leaders from the world's principal industrial nations. Said he: "The globalization of financial phenomena must be accompanied by a globalization of decision making."

CANADA

On the Toronto Stock Exchange, the country's largest, the T.S.E. 300 index dropped 2.1% last week. The Bank of Canada has reduced the prime interest rate to 8.09%, to help struggling banks and brokers. Asked if he was concerned, Finance Minister Michael Wilson said, "I'd be a fool if I weren't." Douglas Peters, senior vice president at Toronto-Dominion Bank, predicted an economic slowdown in early 1988. Hardest hit in such an economic pause, he believes, will be purchases of big ticket items such as automobiles and appliances. But the market fiasco had little impact on the heated debate between Prime Minister Brian Mulroney and his parliamentary opposition over the still-to-be- signed U.S.-Canada free-trade agreement.

MEXICO

Twenty members of the opposition Labor Party last week put a mattress outside the seven-story Mexico City Stock Exchange, but no one jumped. The market has dropped 50% in value in the past three weeks -- after a 243% rise from January to June. The real worry in debt-ridden Mexico is a U.S. recession. Warned President Miguel de la Madrid Hurtado: "Mounting debt, protectionism and currency problems seriously threaten the domestic stability of nations trying to secure democratic systems."

With reporting by Jay Branegan/Hong Kong and William McWhirter/Bonn, with other bureaus