As the US stock market topples and the economy sputters, the financial seams of the major emerging markets have begun to rip. There is growing anxiety in financial markets. Is the world heading for a recession?The theatrical fall in the major stock indices worldwide along with the collapse of technology stocks, erosion of earnings and equity values point toward a recession. The economic fundamentals of the global stock markets are pointing in the wrong direction. Over the last one year the NASDAQ has fallen by more than 60 percent, the S&P 500 Index has fallen by 23 percent, thereby relinquishing their tremendous gains of 1999 and early 2000. All the bubbles that existed in the technology stocks seem to have evaporated. This deflationary correction in the NASDAQ has brought it in tandem with the broader market. Although the P/E ratio of the technology stocks is still very high the present correction has made their valuations look more reasonable. However, economists opine, that there is more to happen.

Triggered by the economic downturn and decline of the S&P 500 Index below the 1200 mark, consumer confidence and business investment environment has been seriously undermined. This has brought the market into a dangerous zone. Cutouts in investments and liquidation of inventories are dominating. The official unemployment rates have risen above 4.2 percent and are expected to reach 6.3 percent by yearend (i.e., third quarter of the current fiscal). And last but not the least, the real GDP is expected to fall by 1.2 percent in the first three quarters of 2001.

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