Newspaper article The Evening Standard (London, England)

Investors Should Show Resolution

Newspaper article The Evening Standard (London, England)

Investors Should Show Resolution

Article excerpt

THE FTSE 100 index has endured its worst year since its creation in 1985. The credit crunch has brought a bank lending drought with profound effects on the financial system and the real economy, bursting the bubble in share prices as well as property prices.

The near-collapse of Bear Stearns, the interventions needed at US mortgage giants Fannie Mae and Freddie Mac, along with the failure of Lehman Brothers, all took their toll. Investors have run for the safety of government bonds. Small shareholders who saw the FTSE index repeatedly fall below the 4000 mark in the course of the year may feel relief to see it end well above that level, and the year's fall is less than that of the 1974 stock market crash.

The recession brought by the bursting of the bubble is bearing down on the corporate earnings that underpin stock market values. However, the deep cuts in interest rates and much lower oil price must eventually have an effect. When blue chip shares yield significantly more than bank deposits, managers will regain their hunger for higher returns and switch back to shares. …

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