Happy New Year—I Think!
01/08/2009 10:58 am EST
Global markets got a good start to the New Year, with a Santa Claus rally the last few days of 2008 and the first couple of days into 2009, although most gave back some of their gains on Wednesday.
Traders and strategists are cautiously optimistic, seeing some strength in certain sectors and issues.
However, economic woes are still piling up around the world, causing global leaders to continue looking for that perfect stimulus that will turn the tide.
In the UK, the Bank of England is expected to lower its base rate to below 2% for the first time since the bank started in 1694. If enacted, it will be the fourth consecutive cut since October, when the rate was 5%.
The UK economy continues to contract, with rising unemployment and falling house prices. The Nationwide Building Society reported that housing prices tumbled another 2.5% last month, bringing the 2008 decline to 15.9%, the biggest annual slump since the index was established in 1992. And some analysts expect another 20% plunge in prices this year.
The US economy—for better or, lately, for worse—continues to drive global bourses. Our latest unemployment numbers—a loss of 693,000 jobs in December—put a halt to the end-of-year rallies, with the FTSE closing down 131 points today and the FTSEurofirst 300 index declining 1.3%.
And there’s more to come—Alcoa (NYSE: AA) announced pending reductions of more than 15,000 jobs, while rumors swirl about other big companies. Investors will watch closely Friday’s employment report, which includes December’s unemployment rate.
Meanwhile, Germany’s unemployment rate saw its first rise—up 18,000 in seasonally-adjusted terms—since February 2006, and the government may announce another stimulus package as high as 50 billion euros ($67 billion) next week.
In China, the Purchasing Managers Index—a survey of 700 manufacturers—took a third straight monthly hit, on the heels of falling exports. China’s manufacturing sector comprises about 40% of its economy, and the slowdown has prompted thousands of lay-offs as factories shut in droves.
And just as the Bernard Madoff scandal appeared to be settling down, investors were stunned by the announcement that the chairman of Satyam Computer Services (NYSE: SAY), India’s fourth-largest software services exporter, had been falsifying the company’s revenues, earnings, and assets for years. Call it Enron on the Ganges.
And now, as my dad used to say, the chickens have come home to roost, sending the shares down 78% Wednesday, and taking with them the Bombay Sensex Index (which lost over 7% of its value), as well as unsuspecting investors’ hard-earned money.
SAY was one of those stocks that was owned by many mutual funds and exchange traded funds, when India’s market was flying high. Many of you may even own it, without even knowing it, in one of your retirement vehicles. And although it’s pretty hard to detect outright fraud before it’s reported, this just underscores how important it is to understand individual stocks in which you invest.
The only market sustaining the Santa Claus Rally was the Nikkei, which closed at a two-month high (up 1.7%) Wednesday, posting its first seven days of rising markets in three years. The market reacted positively to news about the incoming Obama administration’s proposed stimulus package, as well as a report that the Japanese government may eliminate capital gains taxes for foreigners investing in Japanese companies through funds.
This week, our Global Investing section includes a wide range of recommendations. Paul Goodwin, editor of Cabot China & Emerging Markets Report, discusses his outlook for solar energy.
Allan Nichols, editor of Morningstar InternationalInvestor, likes a French software maker and Nick Lanyi, editor of High-Yield International, looks for high return with a South American beverage company.
My New Year’s resolution list is almost done and I’m determined to keep at least some of them this time around. But high on my wish list is expanding our reach to bring you greater access to leading financial experts around the globe.
Cheers for a good 2009!
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.