Business | Opinion
World stock markets return from the brink in two phases
Investors remain confident that the Armageddon scenario of a collapse of the world's payment system has been averted
- By John Authors By John Authors, Financial Times
- Published: 00:00 March 10, 2010
On Monday, it was exactly one year. World stock markets closed at their low for the crisis exactly 12 months ago. The rally that then started is still intact.
The FTSE All-World index is up 75 per cent in dollars, no significant market is down and big emerging markets have had huge gains — more than 160 per cent for Russia and Indonesia.
But a year on, we can see the rally had two distinct phases. First came seven months of explosive growth, led by financial stocks. Since then, financials have stalled or even fallen back, and the main indices have gone nowhere.
Investors remain confident that the Armageddon scenario of a collapse of the world's payment system has been averted. But they are not so certain about the recovery. Instead they fear a different Armageddon scenario — that the government spending that averted the first disaster will lead to sovereign debt defaults.
Just look at the trajectory of Citigroup. It sparked the rally with an internal memo by Vikram Pandit, chief executive of the financial conglomerate, confirming that it had made money in the first two months of last year.
Fear of nationalisation for Citi spurred the final market plunge.
As that fear abated, Citi's outperformance was explosive. By August, it was up 240 per cent from its nadir. Since then, however, it has dropped 31 per cent. The broader KBW banks index is up 162 per cent for the past 12 months, but slightly below its peak last October.
Measures of stress, such as extra rates banks charge to lend to each other, compared with lending to the government in the Treasury bill market, show a similar pattern. After extreme stress 12 months ago, they returned to historic norms last autumn — and stocks have barely moved since.
This was a classic "relief rally" that rewarded those with the nerve to bet that big banks would not be nationalised and that desperate government measures would work. But it is over, and it is not possible to discern what comes next
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