Newspaper article The Journal (Newcastle, England)

UK Market Seems to Be Stabilising; Wealth & Investment Management Charles Nicholson Gives His Economic and Market Overview Analysing the Effects of the Global Credit Crunch

Newspaper article The Journal (Newcastle, England)

UK Market Seems to Be Stabilising; Wealth & Investment Management Charles Nicholson Gives His Economic and Market Overview Analysing the Effects of the Global Credit Crunch

Article excerpt

Byline: Charles Nicholson

GLOBAL stockmarkets have experienced volatility over recent weeks as a result of concerns within the global financial system. We believe that the following points will dictate stock market and economic performance going forward.

1 The credit crisis in the US sub-prime mortgage market has created financial contagion across global markets. It is yet to be seen however that the US housing crisis is having a significant knock on effect on the US and global economies.

2 There has been a tightening of liquidity which has had an impact on the private equity market and in particular in the UK many stocks have priced-in private equity interests. The valuations of companies do look relatively attractive, however this is against a backdrop of a number of years of uninterrupted earnings growth which may be beginning to reach the top of the cycle.

3 Much is focused on western economies and markets and it is important that we realise there is an economic shift away from the US towards Asia which is resulting in a weakness of the US dollar. The markets

The US - tightening credit conditions have been affecting private equity, especially highly leveraged buy outs. We expect real GDP growth in 2007 to be around 2%. There are continuing signs of improving jobs data. However, if the crisis in the US sub-prime markets spills over into the main economy, this will obviously create a less attractive growth environment. Federal Reserve chairman Ben Bernanke does have scope to massage the economy with monetary policy, however this will need to be done carefully with one eye being kept on inflation figures.

The UK - the equity market has been affected by signs that the leveraged buy-out boom is over but the market appears to be stabilising. The rise in the LIBOR rate relative to UK base rates is continuing to put pressure on the UK banking sector. Larger capitalisation stock valuations still look attractive and are likely to be favoured by a more risk averse investment environment. …

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