Money
Issue No. 48 - August/September 2009
Market’s low point has passed
by Tony Catt
Recent commentary by a well regarded fund manager stated that “the point of highest risk (for the share market) has passed”. The Global Financial Crisis of 2008 and early 2009 almost looks to be a part of history but are we really out of the economic woods and where should you invest to take advantage of this if we assume the point of highest risk has indeed passed? Over recent months share markets enjoyed a bounce from early year lows as investors focussed on earnings past the current downturn.
Negative pressure that had built up since September 2008 was released over a three month period with President Obama announcing plans to help the US economy. The rebound in share prices saw many markets gain 30% from the lows with US share markets managing to reach positive territory for the year and many other share markets followed.
In recent weeks share markets have struggled to maintain this positive level as the World Bank reduced its economic forecasts for 2009, concerns were raised over government debt and many analysts wondered if the share market had run too far too fast. The World Bank predicted that the world economy would shrink by 2.9% in 2009 causing significant selling on share markets through June. In most circumstances the IMF and World Bank estimates that have been announced more recently appear to be lagging indicators and there will be few market participants that don’t believe 2009 will be difficult for the world economy. 2010, however, looks to be brighter with potential for green shoots to become saplings and growth to return to the world economy.
Credit markets continue to improve after the late 2008 crisis and remain crucial to the performance of the share market. The cash rate in most countries is very low or close to zero with yields on longer dated bonds increasing over the past two months on fears of higher rates due to large government bond raisings, higher inflation and potential downgrades in country credit ratings....
