Stock Market in 2008

Already since the start of the year the FTSE-100 has fallen 7%. Yesterday, the stock market fell 3% of 190 points on fears related to the growing credit crunch. In particular, American bank Citibank wrote off $18billion from its mortgage defaults. It hopes this will draw a line under the losses in the derivatives market.

Although, mortgage defaults in the UK are not such a problem in the UK. The UK is been squeezed by the shortage of capital as investors are unwilling to risk purchasing any ‘subprime’ related debt. This has caused the cost of borrowing to increase, it means that mortgage costs have increased despite the cut in interest rates.

What Factors Will Affect the Stock Market in the Coming Year

  1. Slowdown in Growth. A slowdown in growth is now widely expected. Lower growth will lead to smaller profits and therefore lower earning this will have a negative impact on share prices. However, the lower growth is probably already built into the share prices. Often stock markets can do surprisingly well in recessions – usually because the stock market anticipates the falling growth
  2. Cut in Interest Rates. Lower interest rates are usually welcomed by the city. Falling interest rates make the stock market relatively more attractive than the bond market. Lower interest rates will also boost growth and stave off any recessionary threat.
  3. How Bad will the Credit Crisis Become.  A key factor in determining the performance of the stock market will be how deep and severe the credit crisis becomes. It may be that the US government approve a rescue practice for mortgages at risk of defaulting. If the US housing market stabilises then confidence may return. If this occurs it will provide a big fillip for the stock markets.

Which is Best Stock Market to Invest In.

If you are unimpressed be prospects for the FTSE-100 or Dow Jones in US, you might be better off investing abroad. The Indian Sensex has offered good returns in recent years, some analysts suggest that the potential of the Indian economy means it has a long way further to go.

By on January 16th, 2008