Indian markets to be safe haven for investors in '08

India's stock market, one of the world's most expensive, is likely to be a safe haven for investors in 2008 because of the economy's low exposure to slowing global growth.

Global investors should also be overweight Chinese shares, though less so than in 2007, as well as Hong Kong issues, while going underweight South Korean and Taiwan markets.

India will fare better than more trade-dependent economies as US growth slows, noting exports of goods and services account for about a fifth of its gross domestic product, compared with 40 per cent for China.

"Its valuations look steep, and it's a crowded trade ... but it's the nature of lifeboats to get crowded. And there is some merit to the idea of India being seen as one now."

"It can remain in a protracted expensive valuation zone because there's not enough reason to sell it."

Investors need to build long-term portfolio - 2

What aided the rally, of course, was the relentless fund flows from global investors who now have fewer exciting markets besides India.

It was the same investment community which hammered the stocks though there was also enough support from the local traders who had built positions beyond their capabilities. As a result, the super profits of 2007 disappeared in a matter of two trading sessions.

Though local mutual funds and institutional investors did their shopping, it couldn't stem the negative pressures on the market.

With foreign institutional investors (FIIs) still preferring to book profits and keeping away from Dalal Street, one wonders whether the equity story has lost its steam.

Investors need to build long-term portfolio - 1

Finally, the equity market has come under selling pressure and when it happened, it wasn't a pleasant scene.

In the first two trading sessions, the markets went into a selling mode as if there was no future for equity and though there was a mild recovery in Wednesday's trading, the under current was far from comforting.

While the short-term trend continues to be volatile, the time has come for investors to go back to the basics of investing

For a good part of 2007, this was completely forgotten, as the index had turned a sprinter by adding 800-1,000 points in a matter of a few days.
In 2007, big rallies were to the tune of 600-700 points in a day's trading and the Sensex rallied from 17k to 19K in a matter of few trading sessions.

Structure of IPO market -2

There is ample room for modifying the current system of book-building which is neither realistic nor reflects investor sentiment towards an IPO. This is an eyewash that does not serve the cause of the larger section of the market.

The IPO market infrastructure should be revamped, including the book building process leveraging the secondary market infrastructure. The listing day volatility can be substantially brought down if the price discovery process is made efficient and the delay between the closing date and the listing date is reduced.

The extreme volatility in a newly listed stock is mostly the creation of retail investors and speculators.

Since that is the case, the book building process should cover the responses from retail investors also to arrive at a price that truly reflects the market sentiment. The current practice of consulting only Qualified Institutional Buyers (QIBs) for the price discovery of an IPO is thus not realistic.

Structure of IPO market -1

The price band for an IPO need not always be the right remedy to bring down high volatility on the day of the listing, as well as on the few days thereafter. One needs to look at the structure of the IPO market in its totality to solve the issue on a long-term basis.

First and foremost, all institutional investors should be paying the full amount of the application as in the case of a retail investor. This will solve the psychological impact of communication on retail investors being associated with the number of times an issue is oversubscribed.

Then one could assume that it is all risk capital that is invested in the IPO and that it is fully paid on the part of the investors. In such a scenario, there is probably a case for using the stock exchange margining system appropriately, to provide a safe landing situation to an IPO in the secondary market.

Today, the speculators, particularly at the retail level, try to grab a newly listed stock after paying a relatively small margin or through the margin funding route of the stock exchange.

Public Offering Market Booming in India

India's booming initial public offering market is set to grow further in 2008, but issuers need to be more realistic about valuations to ensure the party goes on.
As long as issuers demonstrate more restraint in terms of valuations and pricing expectations, I think deals can get done.
"The challenge is that there is a lot of exuberance in the minds of issuers and that is where correction is required," Companies in India are expected to raise up to $15.8 billion from new listings in 2008, almost twice as much as last year's record $8.3 billion, according to data from Thomson Financial.
The Indian stock market has been on a five-year, record-breaking bull run partly driven by foreign funds attracted by strong domestic economic growth.
Volatility has however picked up, with the index posting intra-day falls of more than 10 per cent on two days last week before rebounding to end a turbulent week down 3 per cent.
Value was beginning to emerge in Indian equities, with the market trading at a price to earnings ratio of about 17 times for the year ending March 2009.
"These are pretty healthy levels and from a longer term point of view, the correction is making markets more robust for the future."
Indian billionaire Anil Ambani's Reliance Power last week raised $3 billion within a minute of opening. The issue, India's biggest initial public offering, attracted bids worth a total $190 billion.
"I think the message from the markets to investors in general, and issuers, is that we have got to make sure there is an element of realism in the middle of exhuberance. Back to basics,"

Get your timing right(part-2)

The past seven years' date-wise trend of the Sensex and major equity funds clearly suggests that between the 23rd of a month and the 2nd of the next month, the Sensex is lower than during the balance period.

The reason, to some extent, can be attributed to the expiry of futures contracts on the last Thursday of each month, which can lead to selling, to close positions in the market.

Once the futures expiry is complete, the market starts consolidating again, inflating the Sensex and NAV values.

We observed the NAV behaviour of four equity funds - HDFC Top 200, Reliance Vision, Pru ICICI Growth and Franklin India Blue-chip. As is evident from the adjacent table, the NAV trend for the mutual funds under observation is similar to the Sensex trend. This indicates that an investor planning to go in for a SIP has to understand the trend and then take the plunge.

The trend in the years prior to '03-04 is similar to that of the Sensex. In all the earlier years from '00-01 to '02-03, investors would have made a saving if they had invested between the 23rd of the month to the 2nd of the next month. So, plan well and make sure to maximise your returns!

HOW DO SIPs WORK?

SIPs work on the premise of rupee cost averaging. Even seasoned investors find it difficult to predict the ups and downs of the stock market. Hence, the best resort is to go in for a disciplined way of buying units on a monthly or quarterly basis.

By doing so, investors can avoid the temptation of timing their investment. 'Market timing' is an activity that is best left to professionals. Moreover, the way to weather market cycles is to invest throughout the cycle, so that the investor automatically ends up buying more units at lower NAVs and lesser units at higher NAVs. Therefore, on a net basis, investors will be able to average out their unit costs over a period of time.

Get your timing right(part-1)

“While going in for a SIP, choose dates during the fag end of the month or very early during the month. This can help you get units at lower NAVs”

The Systematic Investment Plan (SIP) route is often suggested as the best way for retail investors to invest in equity funds. This is because it cuts the element of 'timing' by allowing investors to accumulate units systematically over a period of time.

ET Investor's Guide suggests an even better investment strategy - while going in for the SIP route, choose dates during the fag end of the month or very early during the month. If history is any indication, this method can help investors get units at lower let asset values (NAVs).

In the last six out of seven years, Sensex values, on an average, have been lower during the 23rd of a month to the 2nd of the next month. The situation was no different when a similar study was performed across equity funds.

Normally, there are 3-4 possible entry dates (mostly 1st, 7th, and 10th, 15th, 20th or 25th of a month) that an investor can choose from, to invest in any mutual fund for SIP requirements. Depending on the NAV as of the investment date, the investor is allotted units to his credit. By following the above investment strategy, investors are expected to generate maximum returns over the long term. On an average, investors will get units at a lower NAV than otherwise.
There is a clear trend in the way NAVs of the equity market and equity funds behave during the end of a month, as opposed to their behaviour during the middle of the month.

Read the Fine Print(part-2)

How to Invest

The different modes in which one can invest overseas in stocks, bonds, currencies, commodities, realty, et al include:

1. Direct Foreign Investment

2. Domestic Mutual Funds investing abroad: Sebi registered mutual funds have been cumulatively permitted to make overseas investments of up to $3 billion subject to Sebi guidelines. Further, such mutual funds which were hitherto permitted to invest in equity of listed overseas companies provided the overseas listed company held at least 10% in a company listed in India, have now been permitted to make such investments without the requirement of 10% reciprocal shareholding in a Company listed in India. Currently, only a handful of domestic mutual funds like Franklin Templeton and Principal PNB have launched funds which invest in overseas securities.

3. International Mutual Funds

4. Domestic companies with large foreign business/service exposure (indirect foreign investment)

5. Securities, Brokerage or Fund houses.

Recent Announcements in the Union Budget 2007-2008

The honourable Union finance minister, P Chidambaram, has announced in his Union Budget 2007 -2008 speech that he proposes to converge the different regulations that allow individuals and Indian mutual funds to invest in overseas securities by permitting individuals to invest through Indian mutual funds.

Hence, we may expect some changes/liberalisation in foreign investments norms soon.

Asset Allocation

One needs to carefully do the asset allocation between local and international investment. Although there is no ballpark figure, it all depends upon the risk-return profile of the investor and investment opportunity. However, for a conservative investor, an asset allocation of 5 to 20% towards international investments is fairly reasonable.

Conclusion

Although the Indian stock markets have seen strong growth over the last 3 years, the recent fall indicates that going forward, the growth could slow down. Thus, with the liberalisation of foreign investment norms, investing outside India is (shown become) comparatively easier than before, but before treading into foreign waters, one needs to consider the pros and cons thereof carefully.

Read the Fine Print(part-1)

"Learn about the process & restrictions before you plan to invest abroad"

We've heard the axiom "The world is your investment landscape". With the Reserve Bank gradually liberalizing the provisions relating to foreign investment, let's see how can one really go about investing abroad and what are the crucial factors one needs to consider while investing abroad. Moreover, the Union Budget 2007 -2008 has also made some announcements to enable foreign investments.

Why Invest Abroad?

As the renowned economist Adam Smith said "Never keep all your wealth in the country where you live because anything can happen - and usually does". As per Goldman Sachs, in the next 50 years, Brazil, Russia, India and China - the BRIC economies - could become a much larger force in the world economy. Moreover, some of the European countries have witnessed goods economic/financial progress over the last few years and so have certain USA companies investing in emerging markets. The pros and cons of investing abroad are:

Foreign Investment Restrictions

Investment outside India by residents of India has been restricted since ages due to the lack of foreign exchange reserves. However, with the gradual build-up of foreign exchange reserves, RBI has been constantly relaxing the law relating to foreign investments.
Till recently, RBI permitted resident individuals to:

1. Invest in the following instruments without any upper limit:

a. Equity of listed foreign companies, who in turn have shareholding of at least 10 per cent in companies listed on a recognized Stock Exchange in India as on January 1st of the year of investment, and

b. Rated bonds and fixed income securities provided however the rating should be at least A-I/ AAA by Standard & Poor or P-a/Aaa by Moody's or FI/ AAA by Fitch IBCA etc. for short -term obligations and corresponding ratings for long-term ones.

2. Remit up to $25,000 per calendar year (January to December) for any purpose without any distinction between the transactions being on the current or capital account.

3. Remit up to $5,000 per remitter/donor per annum towards gift and donation each aggregating up to $10,000.

Recently, RBI issued AP (DIR Series) Circular No 24dated December 20,2006, which has enhanced the limit from $25,000 per calendar year to $50,000 per financial year (April to March) for any current/capital account transactions. However, the above revised limit of $50,000 includes remittances towards investments in overseas companies (the requirement of 10% reciprocal shareholding in the listed Indian company by such overseas company has been dispensed with), gift and donation.

Sustaining the Unsustainable(part-2)

Since then, economists have vied with each other to overturn this orthodoxy. Indeed, rejecting the conventional wisdom is now conventional, as Jeffrey Frankel, an economist at Harvard University, has pointed out. Three years ago, Michael Dooley, David Folkerts- Landau and Peter Garber, all Japan, Saudi Arabia, America and the EU economists at Deutsche Bank, argued the world economy was enjoying a reprise, the Bretton Woods era. America's large external deficit could be sustained for years as Asian central banks kept their currencies cheap in order to foster export led growth. In '05, Ben Bernanke said global interest rates were oddly low, suggesting a glut of saving abroad, not a shortfall of saving at home, was responsible for the flow of capital to America. Recent papers have picked up similar threads, arguing that imbalances may prove to be more persistent and less perverse than once thought. A study by IMF economists showed poor countries which export capital grew faster than those which rely on importing it from abroad.

One reason may be the feebleness of their financial markets. Ricardo Caballero and Emmanuel Farhi of the Massachusetts Institute of Technology, and Pierre-Olivier Gourinchas of the University of California, Berkeley say emerging economies have been accumulating real assets, but their generation of financial assets has not kept pace. Thanks to weak property rights, fear of expropriation and poor bankruptcy procedures, newly rich countries are unable to create enough trustworthy claims on their future incomes. Lacking vehicles for saving at home, the thrifty buy assets abroad instead, because emerging economies' supply of financial instruments is so unreliable, people may hoard more of them as a precautionary measure.

If global imbalances are the result of such frictions, they are unlikely to unwind quickly. Financial systems do not mature overnight. If Mr. Caballero is right, America is also less vulnerable to a sudden run on its securities. Where will the excess demand for global assets go? So far, the behaviour of financial markets seems to vindicate his point. But it's a mistake to place too much faith in these new studies. If the dollar tumbles, there will be plenty of academics ready to take the old theories off the shelf and eager to say: "We told you so."

Sustaining the Unsustainable(part-1)

“Global investors are worried about many things. Why is America's current-account deficit not one of them?”

Sour subprime mortgages, sluggish retail sales, the spectre of a broader retreat in credit and consumer spending. These are the American shadows that spooked investors across the globe this week, sending share prices tumbling from Manhattan to Mumbai. For years, the longest shadow of all was cast by America's imposing current-account deficit. But in these fretful times, no one seems to be fretting much about the country's reliance on foreign funding. Latest figures show Americans spent some $857 billion more than they produced in '06, the equivalent of 6.5% of GDP, and a new record. China's trade surplus in February was the second highest on record. It has reached almost $40 billion in the first two months of this year.

China's government, one of America's best creditors, has announced it is seeking a better return on a chunk of its forex reserves. It will create a new investment agency, which looks sure to diversify some of the central bank's assets out of the American Treasury bonds that now dominate its portfolio. None of this had much effect on the dollar. Measured on a trade-weighted basis, it has fallen by a mere 0.04% since the recent financial turbulence began on February 27. And as investors yawn at America's deficit, so too do policymakers. A year ago, finance ministers and central bankers from the G7 group of countries promised to take "vigorous action" to resolve the imbalances between the world's savers (particularly China, Japan and oil exporters) and borrowers (especially America). The IMF was hoping to reinvent itself as the overseer of this grand macro economic bargain. A year later the venture has fizzled. The IMF sponsored discussions between China, Japan, Saudi Arabia, America and the EU have yielded little. What explains this non-chalance? By some measures, the world is already rebalancing. The dollar has fallen by 16% from its’02 peak in real terms. Compared with the previous quarter, America’s current account deficit shrank in the last three months of ’06 and was below $200 billion for the first time in more than a year. That decline was a lot to lower oil prices. But even excluding oil, America’s trade balance seems to be stabilizing as exports boom and imports slow. Even so, it is hard to escape the conclusion that both investors and officials have become less worried about global imbalances. A few years ago, most economists argued the spectacle of poor countries bank rolling America's deficits was the perverse and unsustainable consequence of American profligacy. Economic theory suggested capital should flow from rich countries to poor ones; and that America could not increase its foreign borrowing for ever. Empirical studies showed that deficits of more than 5 % of GDP caused trouble.

Asian Stocks Fall For the Third Straight Week

ASIAN stocks fell posting their third weekly loss.

Mitsubishi UFJ Financial Group and Toyota Motor led Japanese stocks lower on concern the level of pay rises will damp growth in the region's largest economy. "With wage increases so weak, there's not much hope for a recovery in spending," said Tomokatsu Mori, of Fukoku Capital Management in Tokyo.

TDK gained after saying it's in talks to buy a unit of Alps Electric, boosting speculation there will be further consolidation in the electronics industry.

Japan's Nikkei 225 Stock Average declined 0.7% while the broader Topix index slid 1 %. China's Shanghai and Shenzhen 300 Index lost 1.6%. Gauges fell in Australia, Hong Kong, New Zealand, Singapore, Thailand and India. Mitsubishi UFJ, Japan's biggest bank slipped 3%, its biggest loss since October 12. Toyota, the nation's biggest automaker, lost 0.7%. Suimitomo Mitsui Financial Group, Japan's No. 3 lender, declined 2.8%.

The world's second-largest economy grew 5.5 percent in the three months ended Dee. 31, the fastest pace in three years, the government said this week. Business investment rose 3.1 percent in the quarter, up from the 2.2 percent preliminary estimate. In contrast consumer spending rose 1 percent in the quarter, down from the preliminary 1.1 percent expansion. Stagnant wages may keep consumers from spending more on goods and services, denting economic growth and making bank stocks, which derive most of their earnings from the domestic economy, less attractive.

Global Markets Sneeze(part-2)

Adding to the housing worries, tile US Mortgage Bankers Association said delinquencies for all home loans rose to a three-year high of 4.95% in the fourth quarter, and to 13.33% in the risky 'subprime' market.

The Dow Jones Industrial Average fell more than 240 points overnight for its second-biggest drop in almost four years on Tuesday, with a tepid 0.1 % rise in the US retail sales in February providing little cheer for investors.

But barring a really severe economic downturn in the US, the Asian economies should continue to enjoy solid growth, said Tim Rocks, Asian equities strategist at Macquarie Securities in Hong Kong.

"We see the outlook as fundamentally very, very strong. Domestic conditions in Asia are very, very healthy. We don't see the Asian markets as particularly expensive overall," he said.

"We think it's a danger to become too defensive in this environment. Obviously we're .not going to know the full extent of this slowdown in the US for some time now so there's some reason for caution, "he added.

Across the region, stock price screens were awash with red.

Sydney lost 2.1 %, Shanghai slid 1.97%, Manila fell 3.38%, Seoul declined 2.0%, Kuala Lumpur was down 2.7% in late deals and Singapore shed 3.06%. Indian share prices were not spared from the rout, with Mumbai down over 3% in early deals. Dealers said the disquiet about the US economy had unnerved investors who are still jittery after last month's big sell-off sparked by heavy losses in Shanghai.

"The latest bout of share market turmoil has its origins in the US even though a 9% one-day fall in Chinese shares (on February 27) may have provided an initial psychological trigger," AMP Capital Investors head of investment strategy Shane Oliver said in Sydney.

"We remain of the view that while recent weakness and volatility in share markets may have further to run, it is just another correction in a still rising trend, " he said.

Global Markets Sneeze(part-1)

“Jitters over Chinese markets resurfaced after data on inflation, loans and trade boosted speculation.
US Mortgage Bankers Association said delinquencies for all home loans rose to a 3-year high of 4.95010 in Q4”

Global stock markets sell off spread to Asia on Wednesday following steep losses in the US and Europe as signs of trouble in the US housing sector spooked investors.

The falls reversed much of the markets' recent recovery from the worldwide rout that began late last month with a 'slump in Shanghai.

Jitters over the Chinese markets resurfaced after recent data on inflation, loans and trade boosted speculation that the authorities there may be forced to take further steps to cool the booming economy, dealers said.

At the same time, the US housing worries drove the dollar down towards new three month lows against the yen in a setback to Japanese exporters, contributing to a 2.92% slump in Tokyo.

The falls mirrored heavy losses across Asia after the Dow Jones Industrial average dropped 1.97% on Tuesday when data showing rising mortgage delinquencies stoked unease about the slowing Housing sector.

The main European markets opened sharply lower on Wednesday, extending Tuesday's losses.
Dealers said the US housing figures had fanned concerns about a possible credit crunch that could put the brakes on consumer spending in the world's largest economy.

"The sell-off in the local market was due to the correction in overseas markets amid the mortgage loan concerns," said Celestial Asia Securities director Kitty Chan in Hong Kong where shares closed 2.57% lower.

"Bad debts and all these issues could take the market lower still if more (bad) news is uncovered in the near term," she said.

Collateral Damage Continues for US Stocks(part-2)

PROFIT FORECASTS

Shares o. both companies rose to records this year. The retreat from those highs stemmed from concern that the market for collateralized debt obligations, backed by derivatives and bonds in addition to loans, will dry up.

When Moody's reported fourth-quarter earnings on February 7, the New York based company said it anticipated lower revenue this year from rating securities backed by home mortgages.
Even so, the company projected "low double-digit percent revenue growth" for all of 2007. The average forecast of eight analysts surveyed by Bloomberg calls for a 14% increase.

McGraw-Hill also based in New York, reaffirmed last week revenue and earnings will increase more than 10% at S&P this year. Sales rose 14% last year at the financial services unit, the fastest growth among the company's three main businesses. Operating profit climbed 18 % and fell at the other two segments, media and education.

FAVOURABLE RENTS

Maguire, whose shares have lost 16% since February 8, rents space in two Irvine office buildings to New Century. The lender also signed a lease on a third, set to open in September.

A year of lost payments on the current space would total $6.5 million, or 12 cents a share, the Los Angeles-based REIT said in a statement on Tuesday.

Other tenants pay much higher rents than New Century does, according to the statement 45-52% more for the current space and25 % more for the new building. The numbers make the stock's decline look exaggerated, and the same may be true for Moody's and McGraw- Hill.

Goldman Sachs Group Inc's fiscal first quarter earnings have become the most extreme example of a pattern among Wall Street firms: making more money than analysts expect.

By earning $6.67 a share in the three months ended February 23, Goldman surpassed the average forecast in a Bloomberg survey by 34%. The out performance was anything but unusual.

The world's biggest securities firm by market value, based in New York, has beaten analysts' first -quarter estimates by an average of41 % since fiscal 2003.

Collateral Damage Continues for US Stocks(part-1)

“Cos Anticipated Subprime Defaults Will Discourage Them from Selling Loan-Backed Bonds”

(Maguire Properties Inc, the biggest office landlord in downtown Los Angeles, is taking a hit as well)

(David Wilson)

THERE'S no shortage of collateral damage in the US stock market from the collapse of subprime mortgage lenders. Shares of Moody's Corp and McGraw- Hill companies, the parent of Standard & Poor's, are falling in anticipation that subprime defaults will discourage companies from selling loan-backed bonds. Any slowdown would mean less demand for the debt ratings that Moody's and S& P provide.

Maguire properties Inc, the biggest office landlord in downtown Los Angeles, is taking a hit as well. The real estate investment trust's tenants include New Century Financial Corp, the second-largest lender to home buyers with relatively low credit ratings.

New Century, based in the Los Angeles suburb of Irvine, California, lost its New York Stock Exchange listing on Tuesday after failing to meet creditors' demands for funds. Accredited Home Lenders Holding Co, a competitor, said on Tuesday it would seek more financing after bankers made a similar request.

The fallout from the industry's travails has moved far beyond the brokerage firms and banks that are active in the subprime business - maybe too far.

Moody's has dropped 20% and McGraw-Hill has declined 11 % since February 8. Subprime lenders began sinking the day after New Century said it would report a loss and HSBC Holdings plc said it would set aside more for loan losses than analysts anticipated to compensate for defaults.

A New Worry for Wall Street(part-2)

Until now, the exchanges have routed orders through a system called Intermarket Trading System. ITS is three decades old and observers are worried it won't be nimble enough to handle the potential increase in order traffic next week as exchanges and networks route more orders among themselves.

Most exchanges will begin moving away from ITS as the new rules go into place, but they'll do so gradually. Meanwhile, last week's lurching market demonstrated the risk of placing too much technological strain on the system. The market rout on February 27 overwhelmed NYSE's own messaging system, forcing delays in handling orders. By the end of the day, floor brokers were processing orders manually. Many stayed after hours to confirm trades. Messaging traffic was even worse last Wednesday, according to NYSE chief executive John Thain, who said it hit 20,000 messages a second at one point.

"One of the servers got overwhelmed," he said during a conference call arranged by Prudential Securities last week. "A certain number of orders that were sent to the exchange got caught in this queue and didn't necessarily get executed the way people thought."

Mr. Thain said the exchange had "rebalanced" its servers and would be adding capacity. But trade delays, which spread to other networks and exchanges though less noticeably, have increased the anxiety as Regulation NMS kicks in. The chief executive of one relatively new network, BATS Trading in Kansas City, said in an e-mail to a regular group of some 1400 readers that he was "concerned about the stability of the public markets in the transition to Regulation NMS." David Cummings, the BATS CEO, added, "I would urge all participants across the industry, especially those with high-speed automated trading models, to be mindful of any unnecessary loads their orders could place on the markets."

The messaging snafus were enough to pique the interest of the SEC, which has been talking to NYSE about what happened. Mr. Thain has denied news reports that a bigger investigation into this week's events is underway.

A New Worry for Wall Street(part-1)

"All trade orders now have to be routed to whatever exchange offers the best price. This means markets like NYSE group's Big Board could lose share to smaller regional exchanges"

LAST week's market turbulence and technical glitches have over-shadowed an important regulatory change that kicks in this week in the US. Beginning Monday, all trade orders are supposed to be routed to whatever exchange offers the best price, meaning markets like the NYSE group's Big Board could lose share to smaller regional exchanges and electronic networks.
The impact won't be completely felt for another month, courtesy of a delaying action from the New York Stock Exchange (NYSE). Last week, the exchange received an extension from the Securities and Exchange Commission (SEC) that gives it until April 5 before it has to comply with all of the new rules, which are called Regulation NMS.

The NYSE says it needs more time to connect its systems to those of potential rivals, including the International Securities Exchange and Knight Trading's Direct Edge. The exchange made a similar request in January to get the deadline moved from February to March.

Last Friday, an NYSE spokesman downplayed the request for the extension, saying the exchange was already compliant with Regulation NMS and could route orders to 10 other exchanges or networks. "There's no drama here,” the spokesman said. But the request to hold off the change comes after several high-tension days at NYSE and growing concerns among traders that the initiation of Regulation NMS will jam up communications among exchanges. Late on Friday, the SEC said in a statement that "exceptional trading volume and price volatility of the equity market over the past few days raise the potential of even greater challenges” during NMS' phase-in. The agency said if problems arise, it will consult with the exchanges whether they are so serious that the NMS rules should be suspended.

Equity market trends dampen investor mood

The renewed sell off in global equities over the past two days is not exactly a surprise to investors but it has dashed the hopes of those who believed the worst had come and gone.

It now begs the question of whether what has been happening on financial markets since the end of February is a traditional "10%" correction or something more threatening.

"Markets were clearly premature in thinking 'right, we've done it, let's start behaving as were earlier,” said Dresdner Kleinwort strategist Philip Isherwood. "This isn't going to wash through within a week, " he added.

European and Japanese shares have lost around 3% over the past two sessions and the S&P 500 lost 2% on Tuesday before showing some calm on Wednesday.

The latest trigger was concern about an unraveling of the US sub prime mortgage market in which lending institutions are exposed to higher-risk borrowers.

But this issue has merely been lurking in the background as part of general investor angst about the health of the US economy and an exceptionally high degree of risk appetite driving a wide array of investments higher.

Since "Correction 2007" began roughly at the end of trading on February 26 volatility has soared and markets have gyrated. Recent stock gains, for example, were enough to persuade some that calm at least had returned, if not the rally itself.

This week's sell offs, however, have left the S&P 500 down 5% since February 26, the FTS Euro first 300 off more than 7% and the Nikkei down 8.45%. It may not be enough if market tradition has anything to say about it.

Almost by definition, a correction is expected to slice some 10% off an index - perhaps twice which in riskier emerging markets- particularly if it comes in a bull market, that is, one that is seen as being in a secular rally.