Bobby, you remember: only two people know for sure. Armstrong is not one of them) Both live in Switzerland and both hold an opposite opinion :)
Shares: Boom or bust
Listening out for the market's direction
It's a bull run on the world's stock markets. Share prices
are surging and investors are scoring massive profits - at
least on paper.
The landmarks:
Wall Street's Dow Jones index has reached the
11,000 points level, climbing 1,000 points in just
over a month.
London's FTSE ventured above 6,600 points and
is trading close to record highs.
In Paris the Cac 40 is at an all-time high.
Germany's Dax may be below old records, but is
currently rising so fast that it is outperforming all
other European markets.
And even Asian markets are showing some life
again, with stock exchanges in Hong Kong,
Bangkok and Seoul posting strong gains.
But are these gains here to stay?
In the United States many analysts believe in the
market's undiminished strength.
At the extreme of this spectrum are people like financial
writer James Glassman and economist Kevin Hassett,
who believe the Dow Jones could shoot up to levels of
about 36,000 points.
Hedge fund manager James Cramer, of Cramer
Berkowitz, believes that many blue chip stocks are just
beginning to rally.
And renowned analyst Abby Cohen of Goldman Sachs
predicted already during last year's economic crisis that
the Dow could well trade above the 10,000 level.
And why not?
The Wall Street rally is now
in its 10th year or
thereabouts, and shows no
sign of weakening. On its
back, European markets
have surged as well.
To cap it all, last year's
gloom merchants, who
predicted a prolonged market
crash in the wake of the
Asian and Russian crises,
have been proved wrong.
London warning
But not everyone is that bullish.
In the UK, many traders and analysts are increasingly
cautious.
Tim Huddart, Director of Global Research at Merrill
Lynch, says there is no reason to get alarmed at the
moment, as the market can "trade above fair value for
quite some time".
But he warns that the risk of a "significant stumble" will
increase the longer the Wall Street rally lasts.
However, he believes that a sell-off is not imminent. Any
"correction" of share prices will come as a "shock", he
says, as a reaction to some significant economic event
like plummeting company profits or a hike in interest
rates.
Mr Huddart says he is less nervous about share prices
in London, but does not believe that the rally will
continue.
"We have seen the best levels in the FTSE 100 for the
current year", he says and predicts that the index will
stand at around 6,100 at the end of the year.
Volatile times
The high volatility of US and European share prices
makes the business of second-guessing the markets
difficult. Swings on Wall Street of 300 points within one
trading session are no rarity anymore.
That is the reason why Mr Huddart and many of his
colleagues are reluctant to predict in which direction the
markets will move - and by how much.
However, there are still a few 'bears' out there, analysts
who believe that share prices are bound to come down -
hard and fast.
Richard Jeffrey, Group Economist at CCF Charterhouse
in London, is one of them. He expects that markets on
"both sides of the Atlantic" will lose around 10% of their
value in the second half of 1999.
Inflation fears
Mr Jeffrey says that the market correction will be
prompted by rising interest rates - or the fear that rates
are just about to go up.
'Inflation' is the buzz word of the market sceptics, both in
the US and in Europe.
Ironically, good news on the economy could make the
market crash happen. Many analysts believe that a
recovery of the UK and global economy, combined with
continuing strong consumer demand in the US, will
ultimately drive up prices.
Central banks don't like such inflation and would be
bound to increase interest rates, pricking the 'bubble' of
high share prices.
The markets are looking out for inflation signals. Last
week, when new economic data suggested inflationary
pressure in the US, the Dow fell sharply for a while.
Merrill Lynch's Tim Huddart, for example, is sure "we are
at the bottom of the (UK) interest rate cycle" - and if
interest rates go up, share prices will come down.
Only the United States could prove the big exception.
There, he says, investors have "climbed numerous times
over the wall of worry".
But maybe the state of the economy does not matter too
much.
Wall Street cynics point to the fact, that US market
analysts are issuing hardly any "sell" recommendations
anymore, as their firms are ever closer intertwined with
the companies that they are supposed to rate.
At the same time, the amount of money poured into
pension funds and other investment vehicles is growing
steadily, increasing the demand for shares and boosting
prices.
Little wonder, then, that share prices are climbing
steadily and manage to overcome easily every small
setback.
Dow 15,000, Footsie 7,000 - here we come.
news.bbc.co.uk
|
