Concerns about global economy

The international equity markets seem to be at a turning point. After a “grim” 2008, the stock markets were once again engaged in a rally amid expectations for recovery of the global economy and repeated injections of liquidity by major central banks around the world.

But today, the indications changed again. Many analysts express their concerns that the global economy will slip back into recession. They base their estimations to data showing decreased growth rates in major developed and emerging economies. The massive shift in U.S. government bonds, the recovery of the dollar and gold and pressures on oil prices is the first evidence of the investors shift. The next move, as analysts warn, could be a massive sell off shares amid panic.

Not everyone agrees with this view, however. Analysts appear divided. Recently, HSBC analysts expressed the view that investors will soon realize that the fears for global recovery is exaggerated and will return to strong equity markets in the fourth quarter.

On the other hand, however, yesterday’s drop of Japan’s Nikkei index below the psychological barrier of 9,000 points – for the first time since May 2009 – is a rather ominous development. Investors responded lately with a massive selloff in the risk of stagnation of the Japanese economy, which is already facing the nightmare of deflation. Something similar could happen in the Western markets. “The most important threat facing the U.S. today and the rest of the West is to follow the fate of Japan; to watch their economies and their enterprises losing their value year after year”, warns analyst Ian Campbell in Thomson Reuters.

If something like this happen, will return the indices of international stock markets back to levels at the peak of the financial crisis. A devastating refutation of these scenarios, however, would offer the international shares the “surge” which now is lost.