Asian stock markets crash, London, New York next?

Stock indices still look quite perky in London and New York despite what senior commentators dub the worst financial crisis since the Second World War. Yet Asian markets tell a different story and probably signal days to come.

Markets in Tokyo and Hong Kong are down more than the bear market correction mark of 20 per cent. Australia, South Korea, Taiwan and India are all off 10-20 per cent. And former high flier China is down by more than a half in value.

This could be a buying opportunity – particularly for investors with highly valued currencies like the pound or euro which could show weakness shortly. But is it not more likely a red flag for the near term future of equities in London and New York?

Time is running out for US analysts predicting an economic recovery in the second half as we are almost in the second half. Surely with oil at $128 a barrel and Goldman Sachs predicting $141 for the second half of 2008 it is obvious rumors of a recovery may have been greatly exaggerated.

Wall Street profits estimates are way too high, and when reality dawns that will be the trigger for a sell-off. Given how bad US consumers are feeling about life it is strange that they are in a state of denial over the outlook for equities.

But they behaved in the same ostrich fashion over house prices – not truly believing that they could fall unless they did – so this is not entirely inconsistent with human psychology. However, if you are long on US or UK equities then pay attention to what has happened in Asia and ask when will it happen here?

It was not so long ago that the experts told us Asia was immune from the sub-prime crisis but it appears that message did not get through to stock owners.