World stocks rebound in 2009 but 2010 uncertain

Saturday, January 02, 2010
PARIS: After a dismal 2008, world stock markets recorded a spectacular rebound in 2009 even though the economy was in crisis, but confidence had not been completely restored and there were fears for 2010.

In Frankfurt, the market ended the year 23 per cent higher and in Paris it closed 22.32 per cent up. London registered a 22.07 per cent gain for the year and the Dow Jones, the star index of the New York Stock Exchange, showed an annual jump of 18.82 per cent over the course of the year.

In Asia, the rebound was even more spectacular. Shanghai gained 80 per cent over the year and Hong Kong 52 per cent. In Tokyo, the leading Nikkei index grew by 19.04 per cent over 2009.

“We avoided catastrophe,” said Gregori Volokhine, an analyst from the Meeschaert investment group in New York. “The markets were saved from a deep depression by the massive intervention of government and central banks, who injected liquidity into a financial system in agony,” he said. Cantor Fitzgerald analyst Marc Pado, also in New York, warned that this did not mean the markets had fully recovered confidence.

“We cannot say confidence is back. We saw some investors cashing out from equities to invest in bond markets,” he said. “Worries about the collapse of the financial system are over. There is a kind of relief in the market now but I cannot say it is confidence.”

The markets were etched with extreme pessimism from January to March with most falling to historic lows by spring. Investors, thrown by the September 2008 collapse of US banking giant Lehman Brothers, feared the nationalisation of financial institutions that had received massive state aid to overcome the crisis.

Money markets later rallied to an unexpected rise, thanks mainly to convincing results of the economic stimulus plans put in place by various governments and encouraging business performances.

Late in the year however, panic gripped the markets again when the possibility of bankruptcy was raised in Dubai in November. But by the end of 2009, most money markets ended the year by recovering a large part of their 2008 losses and some, like London, had even regained the level reached before Lehman Brothers failed.

In Europe, the Lisbon stock exchange rose 34 per cent over the year, in Brussels it was up 31 per cent. Madrid gained 30 per cent, Amsterdam 36.34 per cent, Milan 19.47 per cent and the Swiss market more than 18 per cent.

It was a similar situation in the Gulf where all the markets registered gains over the year. In South America, the Sao Paulo stock market grew 82 per cent for the year. But despite improvements in the stock markets, most of the world’s economies remained limp: growth was generally negative, except in emerging countries such as India, Brazil and China.

Unemployment had exploded, reaching a historic high of 10 per cent in the United States and 18 per cent in Spain. 2010 will be a “test year” for the markets, analysts said. “Investors want to see if the financial system can again function on its own without help,” Volokhine said.

Larry Hatheway and Kenny Liew from Swiss Bank UBS predicted the markets would next year see less significant gains than in 2009. The analysts said the cautious outlook hinged on economic uncertainties: the dollar-euro relationship, possible price hikes for raw materials, questions over interest rates and the explosion of US and European deficits.