Jim Wood-Smith, chief analyst at Gerrards, adds his views to the New York and Washington attrocities...
Jim Wood-Smith, chief analyst at Gerrards, adds his views to the New York and Washington attrocities, and the aftermath that has yet to come.
The appalling and unprecedented events in the United States on September 11th have caused us, together with every serious investment house, to reassess our global, sectoral and stock policies.
The attacks provoke many questions, but no answers and it will be weeks rather than days before anyone has any serious inkling of how the world may have changed as a result. We do not think it is productive to explore these possibilities too far, as only time will reveal which way events are going to develop, but it is important for all investors to be aware of what these issues are.
As we write, we have no idea whether there will be further attacks or what the response of the Unites States, or other organisations, will be. It is therefore too soon to support any knee-jerk reactions - a potential rebalancing of bonds, cash and equities needs to be much more carefully considered.
Equally, it is dangerous to assume that America will initiate military action in the Middle East, thus precipitating an oil crisis. That is in no-one's interests and OPEC, and Saudi Arabia in particular, seem willing to increase production if the price of crude surges further.
Many commentators are currently trying to draw parallels with other historic moments, be it Pearl Harbor, the Cuban missile crisis, the assassination of Kennedy, Vietnam, the Gulf War or any other crisis that can be analysed. The reality is that these attacks are without precedent and trying to call upon history to show us what will happen is interesting but ultimately meaningless.
The key strategic issues to be faced by financial markets are whether the American consumer will retreat back into his or her shell and whether the attacks lessen the chances of America avoiding recession in 2002.
Shorter term, there are other key issues around liquidity in the financial system as a result of the closing of Lower Manhattan, although the Federal Reserve and other central banks have indicated a willingness to cut interest rates to provide extra liquidity should this be required.
The first two questions are, as yet, unanswerable but all investors need to be aware of their importance.
The American consumer is seen as having kept the global economy ticking over for most of this year; if this shock changes his natural aptitude from being one of spending to one of saving, then this will have serious implications for the world economy, and thus share prices, for the coming year.
We know that the risks to equity valuations have increased. The extent of this will only become apparent as events develop over the coming weeks. It is thus natural to be cautious, although it is also too soon to recommend panicking out of equities and into cash and bonds. Investors, by and large, should stick with their current positions for the short term. Hasty actions will almost certainly leave too much scope for future repentance.
Gerrard Limited and Capel Cure Sharp Limited (trading as Gerrard) are regulated by The Securities and Futures Authority and are members of the London Stock Exchange.
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