Despite analysts' bullishness for the coming year, 2003 is going to be far from happy for the global markets
Happy New Year. I don't think so. Let's face it squarely: this year is going to be a whole lot less happy than last year, which was grim. Just because it is the third year in a row that major indices have ended lower than they started (which was last experienced in 1939-41), it doesn't mean a rebound is inevitable. You know there is little appetite when positive comments from the chair of the US Federal Reserve on improving US economic growth fail to stir those once exuberant investors.
Consumers kept spending over the Christmas period, but at nothing like the levels of previous years. Take 23 December, which is supposed to be the day each year when stock markets make their greatest intra-day gains, as the festive spirit finally grips even the most sceptic flinthead. Not this year. In the UK and other markets, it passed indistinguishable from all the sodden, grey days around it, hammered by nervous sentiment and thin trading.
Here's the rub: the market doesn't buy this stuff about a surgical strike against Iraq, and an orderly re-organisation of the Middle East to re-establish an acceptable range for the oil price and underpin the green shoots of global economic recovery. Investors don't care much whether war with Iraq is calculated to cost $40bn or $140bn. The downside is steep, sharp and uncomfortably close.
Investment marketeers, as they should, are doing their best to make the case for compelling valuations (which is just about possible with highly selective data), for historical trends and price markers, and for a new era of enlightened corporate governance. Retail investors, bless them, are starting to venture back into the water, while professionals are ruthlessly taking profits or bolstering cash reserves still further.
They suspect what is coming. Quite apart from Iraq and the looming difficulty with North Korea (which has just blown apart the growing case for backing the rise of the Asian consumer), there is the question of the US current account deficit and the precariously elevated dollar. The US may still be the driver for about one-third of world economic growth, but even the mighty Fed cannot heave both Japan and continental Europe back to growth on its own.
Forecasts for the end of 2003 close of the FTSE 100 range from 3,900 to 5,000. But get the fund managers on their own in a pub and the floor drops to 3,200, with the comment that the FTSE 100 is likely to be one of the hardier indices. More vulnerable markets may fall further. Privately, they are back to gold, oil, property, food and cash ' and of all the world markets to be in, they prefer the UK.
But before smugness sets in, consider the national questions facing the UK-based investor in the coming year. Quite apart from the pensions funding crisis, the impact from April of tax hikes sneaked in a couple of years ago, and a new hawk heading the Bank of England, British troops will no doubt go in just ahead of US forces in the Gulf. This year is also decision time for the UK's entry to the eurozone, and support for closer integration is not exactly at an all-time high.
So it will not be a happy new year. Rather a gut-wrenching rollercoaster, with the general trend downwards and a sickening pitch. The analysts are once more demonstrating their deeply ingrained bullishness, and, as so often before, they are wrong. We are already on military alert and to be heard spreading alarm and despondency in such times is akin to treason. Hope for peace, but prepare for war.
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