City Watch: Brian Tora on why uncertainty has returned to the markets

AFTER a period when confidence appeared to be returning to markets, we have seen the return of uncertainty, with recent momentum stalling.

Investors appear torn between the reality of downbeat economic news that continues hang over sentiment and the promise of more concerted action from governments anxious to better the lot of their electorates.

As it happens, hard news is thin on the ground right now, with the first half reporting season behind us and third quarter figures yet to emerge. Quantitative easing remains in fashion, with the US Federal Reserve Bank actually surprising on the upside with the extent to which they are prepared to pump money into the system.

As it happens, the US market has been one of the strongest in recent months, with the Dow Jones index close to the all time high it achieved some five years ago, though the more representative S&P 500 has not been quite so robust. Contrast that with our own FTSE 100 Share Index, which peaked in 1999 and is still more than 15% below the level then reached.

In fact we have performed rather better than many markets. Greece, unsurprisingly, languishes at only around 10% of its peak, achieved like us nearly 13 years ago. Japan’s high point was reached fully 10 years before that and the index remains at 70% below that level. Even China stands at just 40% of the high achieved in 2007. Some markets – South Africa and Mexico – actually peaked this year and even Germany is within 10% of its high.

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Markets fortunately endeavour to look ahead, so any resumption of the summer rally could presage a better 2013. We will have to wait and see, but we can at least hope.

: : Brian Tora is an associate with investment managers JM Finn & Co.

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