ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Living Dangerously

As financial markets are getting more integrated, the moods and sentiments of Wall Street investment bankers and brokers have a huge impact on market behaviour in non-US stock markets. If concerted international action is taken now to discipline financial markets in the advanced countries, Wall Street particularly, the touchdown will be softer and the emerging markets will stand to benefit.

The sustained buoyancy in Wall Street through the nineties and into the current decade has been welcomed by many as the expression of a new renaissance in American capitalism. Since the meltdown in 1987, and 1991, the Dow Jones index had doubled. Since 1991 it has almost trebled. Moreover, the index in the exchange for technology stocks, NASDAQ, has far outpaced the Dow Jones Industrial Average in the last couple of years.

David Hale, in a recent article in The Financial Times (January 25, 2000), has argued that the stock market boom needs to be seen in the wider perspective. That of reallocation of global resources resulting from the increasing role of information technology and the leadership of US companies in utilising this technology. Technology stocks have been dominating the market: its share has increased from 10 per cent in the early nineties to about 33 per cent now, and in terms of market capitalisation it has soared from US $ 300 billion to $ 4,500 billion. Indeed by mobilising capital and reallocating resources for supporting the technology-driven new economy, the stock market has been the critical supporting factor behind the corporate resurgence in America. From venture capital to corporate bonds, from equities for large and small companies, the capital market has demonstrated its remarkable ability to effectively manage far-reaching change and in generating prosperity.

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