Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (48196)	3/16/2006 4:10:17 PM
From: maceng2	Read Replies (1) of 116555

Arab investors aren't the only ones feeling nervous telegraph.co.uk Anyone who remembers the implosion of the South-East Asian tiger economies in the late 1990s will view the spectacular meltdown in Middle Eastern stockmarkets like Dubai's with trepidation. Even as calm heads dismiss the freefall as an overdue correction of a local speculative bubble there is a nagging concern that this could be the start of something nastier. Bull markets always climb a wall of worry and so investors should not panic because a few Cassandras are calling the top. There is plenty of evidence that the economic upturn, now into its fifth year, still has plenty of legs, with Germany and Japan finally picking up the baton after years in the doldrums. But facts are sometimes less important than perceptions in financial markets, and the slump in the Arab stock markets is symptomatic of a growing unwillingness to take risks in a less friendly world. That has been reflected in sharp declines in the past week or so in emerging markets from Turkish shares to Icelandic krona. The Egyptian market, which had risen 14-fold in three years, has lost about a fifth of its value this year. Investors are nervous for several reasons. First, inflation has risen up the agenda with interest rates expected to rise further and more quickly than previously thought, even as growth expectations are being reined in. A bad combination. The end of Japan's easy money policy has raised fears of a flight to safety for the cheaply borrowed hot money which has chased returns in ever more exotic locations around the world. Then, the realisation has grown that gains in leading emerging markets such as Russia and Brazil have been unsustainable. Russia is still up more than 20pc year to date, while India's shares trade on 23 times earnings, dearer than US shares and much more so than those traded in London. Finally, the furore over DP World's takeover of key US ports has focused attention on the role of free trade and globalisation in the world growth story. The protectionist tide in America and Europe could be a disaster. Money is always taken off the riskiest tables first. As the FTSE 100 nudges 6000, we must hope that caution is not catching.

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