Until the start of this week, it seemed like the fear of war and the disagreement between the major ...
Until the start of this week, it seemed like the fear of war and the disagreement between the major powers continued to weigh on the global stock market. However, as soon as it became obvious that war was inevitable, a sudden change has been seen throughout the market.
Since then, equities markets have rallied and the FTSE 100 has during the last couple of days gained more than 14% after hitting an eight year low last week.
Yet, as the war commence its second day and global stocks continues to rise, it prompts the question whether or not the war against Iraq is the only factor that has been holding markets down?
One of the major factors that seem to have made a positive impact on stocks throughout the world is the decisiveness and certainty of being at war rather than the uncertainty that has prevailed in the last couple of months.
"The one thing markets don't like is uncertainty. Consequently, markets have historically often gone up once the actual decision to go to war or not has been made," says Philip Scott, executive chairman for Norwich Union Life.
The run up to military action has created a lot of confusion and stress that clearly have had a huge impact on financial markets. According to Insight Investment, this has been particularly prevalent in equity markets with shocking and unexpected falls followed by last couple of weeks equally impressive rallies. Even bond markets that, a first, benefited from their safe haven status have not been left without scars as they have become overvalued.
Now, with war fully underway, it seems like shares are rising again. The market is optimistic as it appears to believe in a clean-cut and efficient war, and a quick resolution would remove one of the most negative market influences. This would help to bring back the confidence of the investors, which is one of the key factors holding back the equity markets at the moment according to Insight Investment.
However, it is important not to try to make any market timings decisions that could, if it is going to be a prolonged war, lead to new record lows in markets, say investment analysts.
People who act upon the saying that 'buying on the first bullet' could result in significant portfolio gains or others that might miss out on the sudden rise in stocks might end up with nothing.
"Suspicions abound that the recent gain has been generated by UK and US central government action to bolster sentiment before the Iraqi conflict. These may, or may not, be true but the rise does clearly illustrate the dangers of trying to make market timing decisions. Simply by missing out on gains of this magnitude you can do irreparable damage to portfolio returns," says John Spiers, managing director at Bestinvest.
So caution is the keyword.
Whether or not the war is the sole reason for recent market changes is debatable. Nevertheless, it is important to know that the market is at least as unpredictable as the war.
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