Fear of inflation shaking stock markets
Energy prices may cut consumption demand
|
|
|
By Heikki Arola
Share prices have been extremely volatile in the world's most important stock markets as well as in Finland of late. Performance in October was bad overall in the U.S. and in Europe, but the past few days have provided a strong recovery.
The hurricane disasters in the U.S. have played a role in the developments, but chief stock market analyst Matti Riikonen from the Evli Bank maintains that the key reason behind the volatility is that fears of inflation are rising.
"We have seen a rise in the prices of oil and energy which seems permanent, and it is feared that this will affect the behaviour of consumers and therefore dampen economic growth in the U.S. and elsewhere."
"Investors keep a keen eye on the actions of the Federal Reserve. As long as it continues to steadily increase interest rates, it is interpreted as a sign that fears of inflation have not abated", Riikonen explains.
The situation has made investors nervous, which has then led to more sensitive reactions to news concerning corporations.
"The reactions have been strong. On the other hand, we need to remember that there has been a long period of rising share prices. As the end of the year approaches, many investors want to lock in the profits they have earned and sell a part of their shareholdings."
"This rebalancing of portfolios is often achieved by selling those shares that have had a negative news flow", Riikonen says.
Although nervousness in the market has increased, Riikonen believes that the fundamentals are in shape, and share prices should develop favourably in general.
"The global economy is still doing quite well nearly everywhere. Growth is continuing in the U.S., Europe, Japan, and developing markets. In the U.S., consumption demand growth has slowed down, but there are no signs of a recession."
Market interest rates have risen in the euro zone, but Riikonen believes that the European Central Bank will refrain from rate hikes for some time yet. The ECB is balancing between slight growth and inflationary pressures.
Helsingin Sanomat / First published in print 10.11.2005
More on this subject:
 Heavy cost-cutting measures raise net earnings of listed corporations
HEIKKI AROLA / Helsingin Sanomat
heikki.arola@hs.fi
|
|
