On Oct 8th, the NASDAQ Internet Index declined by 4%, the most since November 2011, as internet stocks witnessed biggest losses. All the 81 stocks that are part of NASDAQ Internet Index had declined during the day. Few biggest losers include YY Inc. (NASDAQ:YY) which declined by 15%, E Commerce China Dangdang (NYSE:DANG) declined by 12%, Web.com (NASDAQ:WWWW) declined by 9%, etc. A few other Chinese stocks that are listed on the US exchange (ADRs) tumbled as IMF had cut China’s 2013 growth forecast to 7.6%. Having experienced decades of double-digit growth fueled by exports and attractive investment projects, China’s slowing growth could affect many global economies, especially Australia.
According to Bloomberg, nine of the top 10 S&P 500 industries slipped more than 1.6%. As the US market turned unpredictable on fears of debt ceiling controversies and the day 8 of the US government shutdown, we anticipate increased volatility in the coming days. A few biggies like Facebook (NASDAQ:FB), Yahoo (NASDAQ:YHOO), Tripadvisor (NASDAQ:TRIP), etc. with solid growth prospects slid too. Many experts opine that if the US government does not increase its debt ceiling, there’s a probable double-dip recession awaiting the entire world (possibly even worse than the famous Lehman crash).
Does this mean, people who had invested in the US internet stocks are exposed to huge risk? The answer is ‘yes’, but equivalent to the proportion of systematic risk in the broader market. A few of our top favorite picks like Priceline (NASDAQ:PCLN), Blucora (NASDAQ:BCOR), Google (NASDAQ:GOOG) and IAC Interactive (NASDAQ:IACI) are relatively stronger investment venues. Having said that, failure by the treasury market to address its interest commitments will have a devastating effect all across the world. If we look at the major foreign holders of US treasury securities China has the highest exposure of $1,277.3 billion and would be affected the most. This explains why Chinese stocks declined more than the US stocks – reason being the dual impact from lesser projected growth forecast of Chinese GDP and China being a major stakeholder in US treasury.
In summary, we would like to highlight that the US economy is currently undergoing the biggest challenge of facing the debt situation, wherein $12 trillion (which is 23 times more than what Lehman had owed) is a mountainous figure. If the lawmakers fail to reach a resolution to the budget standoff it could trigger a global financial meltdown.