As the days have been lengthening, so markets have developed a rather different feel to that which had been established as spring blossomed, following a difficult start to the year. Shares in the UK touched an eight week low recently, with investors spooked by worsening economic data in the US (jobs growth there was way below expectations), growing evidence of the slowdown in China and seemingly rising expectations of Britain voting to leave the European Union.
China is proving slow to go away as a perceived problem for investors. While the shock announcement of its, admittedly modest, currency devaluation against the US dollar did not produce the mayhem in foreign exchange markets many feared, worries over the extent of the slowdown taking place in the world’s second largest economy continue to undermine sentiment. Life may have become a little calmer of late, but there remains much speculation over the extent of the Chinese slowdown.
The focus has shifted from Greece to China over recent days. Shares on the Shanghai Stock Exchange have continued to give investors a rough ride. While the problems stem mainly from the speculation that accompanied the end of the bull run and the role of the banks in funding domestic investors, there can be no doubt China’s economic growth is slowing. Witness the recent fall in the oil price to below $50. Little wonder global growth expectations are being ratcheted down. Read more …
When last I shared my thoughts on what might be in store for markets, investor confidence was being assailed from a variety of directions. Yet somehow we seem to have managed to survive. Greece has got its bailout money, though at a hefty price; the Budget was well received and China failed to implode. Markets have regained a degree of stability as a consequence. While shares are hardly racing away, the restoration of the status quo has brought a degree of comfort to investors.
While there is an old adage in the investment world that you should never believe anyone who says this time is different, it is fair to say that nothing is truly certain. The same is equally true for the world of politics. Despite all the opinion polls predicting a result too close to call and a hung parliament as the only realistic outcome, Da- vid Cameron’s Conservatives cruised to a convinc- ing victory, even if the margin was of a size likely to keep the whips on their toes.
The market seems to be taking the continuing focus on how the country might be run after next month’s general election in relatively good heart. Perhaps the message is that it doesn’t really matter who lives in No 10 because the policies are bound to be pretty similar, given the constraints placed upon economic man- agement by the ongoing deficit problem. Not that the manifestos give any indication that the politicians are being realistic and not making promises to garner votes.
With shares having convincingly travelled through 7000 on the FTSE 100 Share Index and some more encouraging noises emerging from the Federal Reserve Bank over in the United States, investors must be feeling that spring has arrived in the market as well as elsewhere. How long it will last is difficult to assess, but we might as well enjoy the feel good factor that rising share prices deliver. At least company results recently have been encouraging, but it has been the US that has been of most help.
Closing above 6900 at last, our own FTSE 100 Share Index came the closest it ever has to establishing a new high. Indeed, it briefly rose above the previous closing peak, though not above the intraday high it once attained. Not before time. Both the highest closing level and the absolute peak achieved during a day’s trading occurred on the last business day of the last millennium – more than fifteen years ago. Perhaps by the time you read this, a new high has been established.
There is an old stock market saying which I have doubtless referred to before. As goes January, so goes the rest of the year, it says. If the start of this New Year is anything to go by, we could be in for a bumpy ride. Volatility has returned to equity markets in spades, driven by more uncertainty over the future of the European single currency zone, growing doubts over global economic growth and continuing geopolitical concerns in a variety of areas.
With the end of the year fast approaching and efforts increasingly being diverted into matters festive, it seems an opportune moment to reflect on the past twelve months and consider what the New Year might have in store for investors. There is, after all, little in the way of hard news around at present, though a declining oil price and an imminent election in Japan will give investors something to ponder over.