LONDON: Global stock markets are staging a rebound following the wild swings this week that have marked a return of volatility to equity trading after years of unusual calm. The Dow Jones Industrial Average closed 567 points, or 2.3 per cent, on Tuesday at 24,913, a day after having recorded its biggest one-day points drop ever. The S&P 500 was up 1.7 per cent to 2,695, its best day since Donald Trump was elected US president.
The rally spread on Wednesday to European and Asian markets which had been hit hard in recent turbulence. The UK’s FTSE 100 index is up 0.5 per cent in initial trade while the Europe-wide Stoxx 600 is up 0.5 per cent. The Xetra Dax in Frankfurt is up 0.7 per cent. In Japan, the Topix index was up 3.1 per cent in morning trading, after falling 4.4 per cent the previous day, while the Nikkei climbed 3.2 per cent a day after shedding 4.7 per cent. Hong Kong’s Hang Seng index was up 2.5 per cent. The focus for many investors during the roller-coaster day on Tuesday remained on the Vix volatility index, Wall Street’s so-called fear gauge, which briefly shot to its highest level since the 2015 Chinese currency devaluation. Funds that allow investors to bet on tranquil markets were at the centre of this week’s fall in equities, plummeting in value. Credit Suisse and Nomura both pulled volatility-based securities from the market. Shares of Cboe Global Markets, which owns the Vix index, tumbled as much as 17 per cent as investors feared the closures could affect trading volumes.
“When it [shorting volatility] doesn’t work, it really unwinds quickly and you get catastrophic losses,” said Sebastien Page, head of global multi-asset at T Rowe Price. “Why are investors attracted to it? Because in normal times it consistently makes money until it doesn’t and then you lose big.” At its worst during the turmoil on Tuesday, the S&P 500 was down 9.7 per cent from its all-time high in January, while the Dow did enter technical correction territory, being down more than 10 per cent from its high.
