International markets to settle down: Leckie
There will be volatility next year – but no overall downturn in international equity markets, says Perpetual Investments’ head of investment markets research Brigitte Leckie.
Wednesday, December 7th 2005, 6:29AM
by Rob Hosking
Global equity markets can be expected to settle down next year, Leckie says.
Her view is that the concerns about inflation which have caused caution in the world economy – and central banks to hit the interest rate button – are probably receding.
There are still clear inflationary pressures, she says, but it looks as though the interest rate rises by a number of central banks around the world have had the desired effect.
“The oil price rises have acted like a tax,” she says. “Instead of passing the costs on, people have absorbed them and cut spending elsewhere.”
The worst-case scenario is that prices will continue to rise, central banks will lift interest rates, “we get recession and the equity market is cactus. We get a re-run of the 1970s.”
However Leckie doesn’t think that will happen. “I think the reality is we’ll see a return to a normal trend, albeit with some volatility.”
US equities have been languishing in recent times. The reasons are the booming China growth, various market scandals hurting investor confidence; concerns about US government fiscal policy high oil prices, and the emerging “lame duck” era of George Bush’s presidency.
Bush is constitutionally barred from running for re-election in 2008 and, even without his recent dip in popularity, will have diminishing clout over the rest of his term.
Leckie also points to a frequent “mid-term blues” effect which hits regardless of the president and which often causes a dip in equity markets.
“However, US firms remain on the whole robust. Earnings are strong and they have strong balance sheets.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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