American investors got a hard lesson on the globalization of financial markets last week.
A four-day plunge of 33 percent in the Hong Kong stock market reverberated in the canyons of Wall Street as if it was a block away. The Dow Jones Industrial Average tumbled 320 points, or 4 percent, Thursday and Friday.
"It is interesting that people are surprised markets are related around the world," says Gregory Fager, director of the Asia department of the Institute of International Finance in Washington.
The big question right now is "How related?"
The volatile Hong Kong market recovered 7 percent Friday, and markets from Japan to Europe, initially shaken by the Hong Kong plunge, took the same cue.
But on Wall Street, investors seemed less certain. The Dow, Friday lost another 132 points.
The crash in Asia - both stock and currency markets - could be an excuse for trouble in the US market, analysts say.
Globalization has meant that thousands of Western companies, led by those in the US, have invested heavily in the economies of China, Hong Kong, Singapore, Taiwan, Thailand, Malaysia, Indonesia, and the Philippines.
So far, only markets in Taiwan, China, and Singapore stand relatively unscathed.
Western companies with heavy involvement in Southeast Asia could see demand for their products, especially those related to technology, shrink. Also, the flow of investor dollars to the region may dry up, choking off growth.
"Economic euphoria has come to a rather grinding halt," says David DeRosa, a finance professor at the Yale School of Management, New Haven, Conn. But "I don't view this as a global economic meltdown."
Most analysts suspect the $7 trillion American economy will emerge nearly untouched by the Asian turmoil.
The region, not including Japan, takes only 2 to 3 percent of US output. And that market will shrink, not disappear.
The biggest US trading partners - Canada, Mexico, Europe, Japan - should "more than offset" any shrinkage in Asia, says Adam Posen, a research associate at the Institute of International Economics in Washington.
US multinational companies may find sales "a little slower" in Southeast Asia. Companies with major business in Asia, such as IBM, Coca-Cola, and Texas Instruments, were among those leading stock prices down Friday. Boeing could lose some aircraft orders.
In both Hong Kong and the US, investors have shared anxiety about stock values. Hong Kong's Hang Seng index had doubled since the start of 1995. And Wall Street's Dow shot up almost 45 percent in 12 months.
"The Hong Kong stock market was due for a correction," says Mr. Posen, just back from a visit there. "The American market remains ready for a correction. Anything could set off a major ... decline."
But the backdrop to the two markets differs significantly.
Hong Kong investors are still pondering the territory's new allegiance to China. And investors had snapped up a series of "red chip" stock offerings at inflated prices.
"Reality set in," Mr. Fager says.
Moreover, Hong Kong's economy is now at a competitive disadvantage to its Southeast Asian neighbors. Their currencies have plunged 30 to 50 percent, deflating the cost of their labor forces - and their exports.
By contrast, the economy behind the US stock market is robust, on course for its longest ever expansion. Corporate profits are up. The US dollar is strong.
After the Dow fell 186 points Thursday, DeRosa noted: "One good set of [Alan] Greenspan comments can knock the market off that much. This is not that big a deal in the United States."
Whether the Federal Reserve chairman can cause a bigger commotion could be tested Wednesday, when he testifies before Congress's Joint Economic Committee.