Bill Doskoch: Media, BPS*, Film, Minutiae

Curated knowledge, trenchant insights & witty bon mots

'The head rules the heart'

That's the subtitle of a BBC story on why Asian stock markets essentially shrugged off the biggest catastrophe in the continent's history.

An excerpt:

The market, former British government minister Michael Heseltine once said, has no morality.

And indeed, stock exchange traders around Asia have wasted little time regretting the victims of this week's disaster.

Stock markets in Indonesia and India have hit all-time highs this week; even in Sri Lanka, more comprehensively affected, the main index has lost only 5% since the waves hit.

Bigger markets further afield have barely twitched; the MSCI World share index, a measure of global stock market performance, hit its highest level this week since early 2001.

And this at a time when – all sentiment aside – insurance costs are already estimated in the tens of billions of dollars, and countries around the region are looking at trimming their growth forecasts.

Miscounting the cost

In fact, the markets are being perfectly rational.

Asian shares
1. Jakarta
2. Bombay (Mumbai)
3. Colombo
4. Singapore
5. Bangkok

For a start, the notional insurance cost of the disaster will have little bearing on corporate bottom lines.

The overwhelming majority of the victims will have had no insurance: according to estimates from India, only one-quarter of those affected there were wealthy enough to afford insurance, and only one-quarter of that group at most will have taken out policies. Indonesia is likely to have even lower take-up rates.

And where insurance certainly is in place – in, for example, the many tourist complexes affected – the costs will be borne in far-away corners of the global reinsurance market, rather than landing locally.

Wed, December 29 2004 » Main Page