Wall Street shrugs off
Argentina’s money woes

Analysts expect little fallout on global
markets despite the insolvency risk

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By Amy Baldwin
Associated Press

NEW YORK >> Even as Argentina's economy crumbled and its angry citizens took to the streets this past week, Wall Street paid little attention.

Despite riots that have resulted in at least 22 deaths, ultimately resulting in the resignation of the country's president, the Dow Jones industrial hovered around the 10,000 level, rising 2.3 percent on the week.

While individual companies with business exposure in Argentina face some fallout, overall Wall Street barely blinked at the turmoil within South America's second-largest country -- a stark contrast to the collapses in Asia and Russia in the late 1990s that caused widespread problems.

Wall Street's thinking is that while Argentina still risks insolvency as it struggles with $132 billion in debt, there will be little effect on global markets, including here in the United States.

Analysts say traders have learned to shelter themselves from turmoil in international markets.

But there are also several reasons why what happened in Argentina matters less to U.S. markets.

In this case, there's less chance that one region's financial crisis will spread to other markets as the so-called "Asian Contagion" did.

"The magic word here is contagion, and there hasn't been much," said Russ Sheldon, senior economist at Harris-Nesbitt Bank of Chicago. "Despite the size of the Argentine economy by South American standards, it's not a player in the global market. So, there is no contagion."

Others said Wall Street's calm attitude stems from traders having known for a while about Argentina's flailing economy, which has been in recession for nearly four years. U.S. companies, particularly banks, and investors have had time to curtail their business and investing there.

"It didn't surprise us or come out of the blue. I think we have had ... years to work on our exposure," said Arthur Hogan, chief market analyst at Jefferies & Co.

"This is not a new development, it is just coming to a head, and so, the (world) markets are able to look past it."

The Argentine situation is a contrast to the 1997 Asian currency crisis, which caught traders more off guard, Hogan said.

While there were hint of problems in Asia, few expected how widespread the effects would be.

Wall Street demonstrated its surprise on Oct. 27, 1997 when the Dow tumbled 554.26 points, its third-largest daily point drop to date and its biggest at that time.

This case is also different from the unexpected 1998 collapse of the Russian economy, which was sparked partly by the problems in Asia and falling world prices for oil.

In fact, investors were betting on the potential for tremendous growth in Russia, following the breakup of the Soviet Union.

Indeed, Argentina's financial problems, though highlighted in recent years, date back even further.

Its currency was tied to the dollar 10 years ago in an effort first to end hyperinflation in the 1980s and then, according to critics, as a political tool by the Argentine government.

The health of U.S. equities is another protection against any Argentine fallout. Traders have been growing more confident that the economy will turnaround in 2002.

Investors are betting that business will benefit from this past year's 11 interest rate cuts and that companies will have an easy time posting earnings growth next year following the worst annual profits depletion since 1991.

Since late September, such hopes have brought the market's major indicators well above their lows for the year, which they hit on Sept. 21 following a precipitous drop that resulted from the Sept. 11 terrorist attacks.

The week was mostly positive for Wall Street with the Dow rising 224.19 points, or 2.3 percent. The Dow advanced 50.16 yesterday to close at 10,035.34.

But the Nasdaq composite index suffered some profit taking, slipping 7.34, or 0.4 percent for the week. It rose 27.29 yesterday to 1,945.83.

The Standard & Poor's 500 index finished the week up 21.82, or 1.9 percent after advancing 4.96 to 1,144.89 yesterday.

The Russell 2000 index rose 12.73, or 2.7 percent, for the week after gaining 9.94 to 484.02 yesterday.

The Wilshire Associates Equity Index -- which represents the combined market value of all New York Stock Exchange, American Stock Exchange and Nasdaq issues -- ended the week at $10.645 trillion, up $201.25 billion from the previous week. A year ago the index was $12.982 trillion.