Days of danger: a diary
What a week. A market-maker records the mayhem, as the US struggles to reel in the Dragon; Ilyas Khan from Nomura charts the roller-coaster ride of the markets
Sunday 02 November 1997
7.00: Monday morning, arrive at Nomura International with the feeling that the weekend had somehow never happened. Markets feel nervous, colleagues are nervous and Far East selling had been no real surprise to the traders I called from home before leaving for the office. Hong Kong down over 600 points - a grim reminder of the pessimism that has swept these markets over the past few weeks.
7.30: My head trader Chris and "Kejjer", the head of sales, are on the floor ahead of the rest of the crew as usual. There is selling, but there are a few bargain hunters around. Trading is brisk, though with markedly more selling as the day progresses.
10.15: We had planned a new equity placement this week, but by lunchtime it is obvious I must speak to a corporate client to alert him to the real possibility that we should postpone. Investors generally agree that the company is sound and the valuation undemanding, but amidst such volatility, committing money to new issues is the last thing on people's minds. I console myself with the fact that it probably won't be the last time I have to do this.
13.45: Weakness in London is a prelude to the US, where Wall Street literally takes our breath away. The circuit breakers that seemed so sensible when introduced after the 1987 crash are not working quite as planned; most traders find the interruptions actually cause more panic than if the market were given a free rein.
15.15: Amid the confusion, poor old Gordon Brown's speech on EMU is a sideshow; markets follow Wall Street to the exclusion of virtually all else. London closes before the worst of Wall Street, but our business is truly 24-hour now and the traders prepare for an active evening. Almost strangle Kejjer, who says he "told me so".
19.30: Dinner with an old friend and ex-colleague, who has joined a US investment bank in Hong Kong, turns into a surreal pizza party in my living room, watching the news and making innumerable calls to my sales people and the traders in our New York office. To make matters worse, my GDR market maker's phone takes a break, and I can't communicate with him for what seems an eternity.
21.30: The fall is dramatic and the market's gyrations dizzying. I can't decide what to watch, switching between CNN and CNBC, with bits of the BBC and Sky. Seems like a good metaphor for all the confusion. Wall Street down 554 points; mayhem.
24.00: Bed at midnight. Asleep within five minutes, but not for long.
1.30: I thought I could handle sleepless nights, but age must be catching up. The night was a long series of phone calls with my sales guy in Hong Kong. We are being asked to make prices in a variety of stocks against a backdrop in Hong Kong that is literally unprecedented. The Hang Seng loses over 13 per cent - and the most amazing thing is that this comes at the end of a three-week period that has wiped out 40 per cent of the Hang Seng's value. We get "hit" in a few stocks. But unlike most developed markets, the emerging markets offer little opportunity for hedging at the best of times, never mind when markets move like this.
6.45: Nomura is tense. Times like this can bring out the worst in people, and with the best will in the world the salesmen are finding it difficult to deal with demanding clients on the one hand and nervous market-makers on the other. Redemptions by unit trust holders at the retail level are forcing fund managers to sell holdings they would normally want to buy at these prices. With there being no real buying support in any of the Far East markets, making prices in our market-making business becomes uncomfortably close to second-guessing the Dow's movement later on in the day.
9.45: Volumes are heavy all day, and FT-SE starts very weak, down 450 points at its worst, recovers, and then slumps ahead of Wall Street's opening. My head trader Chris, who has seen it all before, is one of the calmest heads around. With trading volumes high all day, his calm purpose is good for young members of the team, some of whom have only known a bull market.
11.30: The worst part of the day is to arrange a conference call with our issuing client and explain that markets are "a little too volatile" for his planned equity placement. The client takes it surprisingly well. I take the precaution of faxing him a news article on the number of deals "pulled" over the last week or so.
14.00: Numerous meetings mean I miss the Dow's opening. An initial plunge sees around 180 points wiped off, but by mid-afternoon it recovers by 170.
19.30: The sense of relief is almost tangible, and the despair of yesterday turns into euphoria. Over a billion shares change hands on Wall Street, and the market finally closes up over 330 points, with many foreign ADRs trading at levels higher than Friday's close. Even more pleasing is that our business manages to come through not only unscathed, but with a small profit.
6.15: Not surprisingly, Far East markets take heart from the Dow's rally, and Hong Kong outdoes even itself with a whopping 16 per cent rise that makes up for the day before - and then some.
9.40: The recovery in Europe is more muted. Germany leads with a rise of over 6 per cent; London shows early gains of over 100 points, trimmed down to 75 points by the time the Dow opens. Somehow, the consensus emerges that gains may be short-lived and, despite early Dow strength, the market turns negative by New York lunchtime.
10.15: The team is exhausted after two busy days, but any thoughts of a slowdown are dealt a blow by rising volumes in our GDR business.
10.43: The thing about this market is that it leaves little time for reflection. I spend time with some younger team members who are clearly shocked by the experience. Their problem seems to be lack of perspective. Someare appreciating first hand the way markets hang together, and contending with unusual conditions where traditional value measures go out of the window.
16.00: Nomura's review of trading business later in the day is a chance for many of us to share experiences. The consensus is that the volatility and turmoil will bring opportunities.
19.00: Most desks are empty and no one is in the mood for much more than going home. I have a dinner engagement with a client, and leave the office with the Dow down 10 points after a rise of over 100, and growing unease about tomorrow.
21.00: Greenspan's comments are widely expected, and the Dow finishes the day 8 points higher, but with more of a feeling of caution than hope.
1.15: A major problem overnight in Hong Kong. One of our clients thinks he sold a large position of Indian equity to our market-makers, who insist our prices were "indicative only" for such a large size. Since the problem cannot be resolved in Hong Kong, I get woken up to talk with Chris on the phone before deciding to call the client and accept the trade, while explaining that we had not made a committed price, but that our client relationships were very important and that in periods of volatility it was even more important to maintain client service. I spend the night worrying about Hong Kong, which at one stage is down over 7 per cent. Some markets in Asia are closed (Malaysia, Singapore, India) but the general trend is down.
7.30: Another mini-crisis at the office, as one of our senior traders is forced to take the day off due to a minor accident. We are short-handed as another trader is in Switzerland on a business trip first planned for Tuesday.
11.45: FT-SE trades down 95 points by lunchtime, and rumours of Brazilian banks defaulting on interest payments cause jitters across both our equity and debt trading floors.
12.45: For the first time this week I manage to have lunch, and compare notes with a friend who works in a large European firm. He is worried, not surprisingly, and feels that, although we may not see another huge crash like Monday, we are still in for large intra-day swings.
14.00: Afternoon difficult. One of my traders has been buying long, and early Wall Street weakness that sees the Dow down 100 in the first 15 minutes creates a burst of activity. Volatility in the first hour leaves my team frustrated and there is a major client selling stocks in our markets just as UK markets are closing.
18.45: I spend the evening with a member of my team who has flown in from Mumbai. The research team is working on sector reports that would normally have received a great deal of my attention, but which will merit only a review over dinner.
22.45: I check our exposure, and the Dow.
6.30: Headlines that George Soros (more precisely, the funds he manages) has lost $2bn (pounds 1.2bn) in the week's turbulence.
Over breakfast with a colleague, I clarify my schedule for a trip to the Far East next week, assuming the markets stabilise a little. I call to congratulate Bronwyn, our chief economist, who appeared in a feature piece in the Evening Standard last night. She has spent the week giving Nomura's views on the markets to the world's broadcast media.
8.30: At work I find that Hong Kong and the Far East generally are better, except for South Korea. I spent time in Seoul in the 1980s, and have a real soft spot for the market; a bit like looking out for the scores of my home town football team, Accrington Stanley.
10.00: I have an important board meeting for one of our funds on Monday, and the morning is spent with the lawyers preparing. The FT-SE is lacklustre, and volumes are lower than the past few days. There is interesting activity in emerging markets equities as fund managers start to look for value after the falls.
15.45: The Dow manages a rise of 90 points in the first 15 minutes - only marginally positive. FT-SE rallies in the afternoon. Although both are off their highs by late afternoon, things look more encouraging for the coming week.
17.30: The Dow has lost 23 points, and a call to colleagues in New York suggests the day will be quiet. Some fund managers speak of surprisingly small outflows from mutual funds over the week. With a number of corporate stock buy-backs announced, there appears to be some underpinning for prices.
It's been a very long week.Volatility has become accepted for financial markets in recent years, but even so the events of the week have been challenging. The markets will settle, and my team looks forward to a return of investor confidence.
19.45: Home for a shower, and off to Hampshire. I'm fishing for grayling on the Avon and the Test this weekend ... and I left my mobile phone in the office. What a pity!
q Ilyas Khan is managing director, South Asian Markets, at Nomura International.
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