Global markets rally again
The Economic Times, March 30, 2009, Page 12
Some Signs Of Recovery Provide Hope
GLOBAL stock markets have rallied as isolated instances of economic recovery have emerged close on the heels of the US plan to buy toxic assets from banks, which promises to somewhat thaw the global financial system. Most markets, developed and emerging included, are up in the range of 25% from their lows reached earlier this month. The sensex, for instance, has rallied to over 10,000 from about 8,000 on March 6. The question is whether this recovery will sustain. The answer to that is normally available only in hindsight. What we do know is the equities typically start looking some six months before the real economy picks up. And there are some indications of revival. In the US, consumer spending was up second month running in February, and house sales have recovered slightly. Commodities are up sharply from their December 2009 lows, and manufacturing appears to be picking up in China. Back home, steel producers claim to be running at full capacity, cement dispatches are strong and consumer goods demand is firm. What has given greater weight to these early signs of revival is the growing belief that the plethora of fiscal and monetary measures by governments across the world would prevent the recession from taking deeper roots. The most decisive was perhaps the US plan to buy toxic assets even though its efficacy is still under cloud.
The immediate test for this small fig leaf for markets would be the January-March quarter results. Market will look out for a visible sign of improvement in earnings or at least stability. Any disappointment or for that matter signs of greater weakness could cause a sharp correction. In fact, volatility is more likely to increase in the coming months. Pitted against the possibly worst recession in decades is a once in lifetime opportunity to invest in shares which can potentially give handsome returns over the medium to long run. The money parked in virtually zero interest money market funds is waiting to rush in at the first sign of improvement. So, while good news could send the indices soaring, any deterioration could cause them to crash equally sharply. Those ready to take the plunge must be ready for a gut-wrenching ride.
The Economic Times, March 30, 2009, Page 12
Some Signs Of Recovery Provide Hope
GLOBAL stock markets have rallied as isolated instances of economic recovery have emerged close on the heels of the US plan to buy toxic assets from banks, which promises to somewhat thaw the global financial system. Most markets, developed and emerging included, are up in the range of 25% from their lows reached earlier this month. The sensex, for instance, has rallied to over 10,000 from about 8,000 on March 6. The question is whether this recovery will sustain. The answer to that is normally available only in hindsight. What we do know is the equities typically start looking some six months before the real economy picks up. And there are some indications of revival. In the US, consumer spending was up second month running in February, and house sales have recovered slightly. Commodities are up sharply from their December 2009 lows, and manufacturing appears to be picking up in China. Back home, steel producers claim to be running at full capacity, cement dispatches are strong and consumer goods demand is firm. What has given greater weight to these early signs of revival is the growing belief that the plethora of fiscal and monetary measures by governments across the world would prevent the recession from taking deeper roots. The most decisive was perhaps the US plan to buy toxic assets even though its efficacy is still under cloud.
The immediate test for this small fig leaf for markets would be the January-March quarter results. Market will look out for a visible sign of improvement in earnings or at least stability. Any disappointment or for that matter signs of greater weakness could cause a sharp correction. In fact, volatility is more likely to increase in the coming months. Pitted against the possibly worst recession in decades is a once in lifetime opportunity to invest in shares which can potentially give handsome returns over the medium to long run. The money parked in virtually zero interest money market funds is waiting to rush in at the first sign of improvement. So, while good news could send the indices soaring, any deterioration could cause them to crash equally sharply. Those ready to take the plunge must be ready for a gut-wrenching ride.
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